Information about trading

make money tradingDo you want to start trading or are you already a professional trader? Either way, you’re in the right place! Within this knowledge base you will find interesting, fun and useful articles about trading.

Three steps to success

Trading is great! Look at it as a game that can make you incredibly rich. Millions of people try to predict the price of securities and influence this price as well. When it comes to trading psychology, the news and technical analysis are all important factors. As a novice trader you can get good results by using a well-balanced strategy that takes all the risks into account.

In our CFD category you can read a lot more about this new way of trading, which you can use to trade commodities, Forex, index funds and stocks with a broker. Our extensive list of brokers allows you to compare the best brokers and get started right away!

Read more about trading...

 

Try trading risk free?

14 tips that help you invest better
Bull vs Bear: How do you jump into the market?
Compound Interest Calculator (2024)
Day trading for dummies: the best strategies
Hedging: what is hedging and how can you do it yourself?
How can you get rich investing in stocks?
How can you invest during an economic crisis?
How can you invest ethically?
How can you invest in a mutual fund?
How can you invest in Africa?
How can you invest in stocks as a student?
How can you invest in the AEX?
How can you invest passively?
How can you invest periodically without investing time?
How can you invest with 1000 pounds?
How can you invest with fake money?
How can you invest without costs?
How can you invest without risk?
How can you investing in economically challenging times?
How can you make a lot of money by investing?
How can you make money from falling share prices?
How can you successfully invest with 50 pounds?
How do the bid and ask prices work with investing?
How do you become a successful day trader?
How does inflation affect the return?
How much does it cost to invest in a mutual fund?
How much time does investing consume?
How to invest 10,000 pounds of your savings?
Invest for free in stocks & Forex
Invest safer with these 8 tips!
Investing definition: what does investing mean?
Investing during the coronavirus
Investing for dummies
Investing for young people: how do you do that?
Investing in a warrant
Investing in futures: explanation
Investing in real estate
Investing in the long term
Investing money: the 12 best ways to invest money
Investing wisely: discover how!
Investing with an investment simulator
Investing with high returns
Is investing haram or halal? This is how Islamic investing works!
Is it better to invest in individual shares or in a fund?
Is it wise to invest with your own bank?
Low risk investing: how to invest at low risk?
Make money on the internet: 64 proven methods!
Make money on the stock market
Perfect investment: what is the best investment?
Psychology & investing: better results
Relationship between risk and return when investing
Relative Strength Index (RSI) investing explanation
Repaying a loan is the best investment
Saving or investing?
Smart investing: learn to trade smarter
Speculation: how to speculate on the stock market?
Successfully investing 5000 Pounds
The difference between a variable and fixed spread
The history of investing
The influence of emotions on trading
The stock market crash of 1987: Black Monday
Trade risk-free with a small amount
Try fictitious investing
Using moving averages when investing: explanation
What are derivatives?
What are investment funds?
What are the 10 biggest listed companies?
What are the benefits of trading?
What are the best investment types?
What are the costs of investing?
What are the risks of leveraged investing?
What is a bubble in the economy?
What is a margin call and how do you prevent it?
What is a ponzi scheme?
What is a stop loss order?
What is an economic boom?
What is an index fund?
What is defensive investing and how do you do it?
What is fundamental analysis?
What is going long?
What is high-frequency trading?
What is investing?
What is scalping?
What is short selling and how does it work?
What is slippage?
What is technical analysis?
What is the average return on investing?
What is the best investing software?
What is the best investment strategy?
What is the best way to invest your savings?
What is the spread in trading?
What is yield and the yield curve?
What you need to know before you start trading
Who invests in futures?

Is investing haram or halal? This is how Islamic investing works!

Are you curious whether investing in shares, Forex & crypto is haram or halal? On this page, I discuss in detail how you can invest according to Islamic Law: 100% halal.

Is investing haram?

Investing is not necessarily haram. According to Islamic doctrine, an investment must meet certain conditions to be considered halal. Below we discuss these conditions briefly:

  • Interest: the investment product may not be linked to the payment of interest.
  • Direct payment for transaction costs: the transaction fees cannot be charged indirectly.
  • Immediate execution of the investment: the investments must be executed without delay.

In the rest of the article, I will delve deeper into halal investing.

Where can you invest halal?

Are you looking for a reliable broker where you can invest according to Islamic principles? You can invest halal with the brokers listed below:

BrokersBenefitsRegister
eToro buy stocksBuy without commissions. Your capital is at risk. Other fees may apply.
Plus500 trade stocksSpeculate with CFD's on increasing & decreasing prices of ! 82% of retail CFD accounts lose money.
DEGIRO buy sharesBenefit from low fees, an innovative platform & high security!
Avatrade buy sharesSpeculate on price increases and decreases of with a free demo!

What are the rules of Islamic investing?

  • Receive profit: as a Muslim, you are allowed to benefit from the profit made by a company. However, it is not allowed to receive interest payments.
  • High leverage: you may not invest in companies that have a lot of debt. Investments in companies where more than 33% of the market capitalization consists of debt are not allowed.
  • Not too many open positions: a company that has more than 45% of its assets open (accounts receivables) is haram.
  • Research: as a Muslim, you must do sufficient research on a company. It is only allowed to invest in halal stocks.

Is investing in stocks haram?

Investing in stocks is not haram, at least when you invest in the right type of shares. If you want to invest according to Islamic law, it is important to investigate the nature of the company’s activities. Below you can see an overview of the shares in which you can invest:

Which stocks are halal?

  • Production
  • Clothing & shoes
  • Medicine & Pharma
  • Real estate
  • Tools
  • Logistics & transport
  • Furniture

Which shares are haram?

  • Alcohol
  • Pornography
  • Casino
  • Drugs
  • Hotels & nightclubs
  • Tourism
  • Banks that lend money
  • Insurance companies

What if it is not clear?

There are also shares where it is not immediately clear whether an investment is fully halal. Think, for example, of a transportation company that charges interest on outstanding bills. Such companies are named “mixed” companies.

Most Islamic scholars agree that it may be halal to invest in such mixed companies. You can then investigate what percentage of the income comes from practices that are not allowed according to Islamic law. If 5% of the income comes from interest, you can donate 5% of the money you earn from your investments to a charity.

Interest is haram

Within Islamic teachings, it is not allowed to charge interest. Therefore, when buying stocks, it is important to investigate whether the company has a high debt. When companies have a lot of debt, they may be haram. There is a high chance that most of the income comes from interest payments.

Furthermore, when investing yourself, you have to be careful with interest. According to Islamic teachings, you are not allowed to use margin when interest has to be paid on it. With many brokers, you can open a special Islamic account without interest payments.
halal investing

Is Forex halal or haram?

Many Muslims wonder if trading Forex or currencies is halal. Investing in Forex is halal in most cases. However, you should keep in mind that Forex is often traded with CFDs. A CFD is an instrument that allows you to trade currencies with leverage. Many brokers then charge interest on your position when you hold it open for longer than a day.

If you want to trade Forex halal, you need to open a special Islamic account. On an Islamic account, no interest costs are charged when you hold the position for longer than a day. An Islamic account also charges no swaps, but you do pay a higher commission when opening a position.

Is investing in crypto & Bitcoin haram?

As a Muslim, you can also invest in Bitcoins and other cryptocurrencies. It is important to buy these digital coins with your money. When you do this, you do not pay any interest. I recommend Bitvavo for trading crypto: with this platform, you do not pay transaction fees on your first €1000. Click here to open an account with Bitvavo.

Are bonds haram?

As a Muslim, you cannot invest in bonds: they are always haram because of the interest payments on the loan. A bond is a loan issued by the government or a company.
Islamic investing

Special Islamic funds

Some investors focus primarily on the long term. According to Islamic teachings, you may not invest in companies involved in gambling or alcohol. Companies that charge or pay high-interest rates are also excluded. For Muslims, there are special funds that exclude these companies.

One well-known investment fund is the Amana Mutual Fund. This fund has regularly outperformed the S&P 500 because many financial companies are absent. This allowed the fund to perform better during economic crises.

Can Muslims Invest according to Islam teachings?

As a Muslim, you can definitely invest! You may need to do a little more research to determine whether a stock is halal or haram, but even with the available options, you can achieve a positive return.

FAQs About Islamic Investing

Investing with an Islamic account can bring advantages. Normally, you pay interest for every day you hold a position. With an Islamic account, no interest may be charged. This allows you to hold positions longer and potentially achieve a greater return.

An Islamic account is less suitable for short-term investments. Because of the commissions you have to pay, you can achieve a lower return.

As a Muslim, you can speculate with any type of investment account if you do it wisely. Paying interest is haram. When you speculate on, for example, stocks or currencies with derivatives, you pay interest if you hold the position open for more than one day.

Day traders close their position before the end of the day. Day traders speculate on rising and falling prices. By closing your positions in time as an active investor, you can therefore actively trade halal.

As a Muslim, you may not invest in real estate if you have to take out a loan for it. The Murabaha construction can offer a solution. In this construction, the bank buys the house and sells it to the future investor at a higher price. You then repay the purchase price to the bank in instalments, so you do not have to pay interest.

When you have the money from your investments paid out, you normally place it in a bank account. However, a savings account is haram if you receive interest on it. For this reason, special Islamic banks have been established. Moreover, you can be sure that these banks do not invest in haram companies or charge interest.

When you want to invest halal, you are limited in your options. For example, you cannot invest in leverage products or bonds. It is also difficult to invest in real estate because you cannot get a mortgage. In the West, Islamic investing is also not very popular, which means you need to do a lot of research to find a suitable broker.

The Islamic world appears to have no issues with cryptocurrency. The Islamic writer Monzer stated in 2014 that Bitcoin is halal, and this conclusion was confirmed by the jurist Muhammad Abu Bakar. Moreover, you can see that Bitcoin is already an accepted payment method in countries such as Indonesia and Malaysia despite their large Muslim populations.

Investing in gold is not necessarily haram. You can invest in gold as a currency, but you cannot invest in gold with futures.

Compound Interest Calculator (2024)

With this comprehensive compound interest calculator, you can instantly calculate how quickly your money can grow due to the effect of compound interest.
  • Return: you can immediately see how much your deposit(s) could grow!
  • Variation: you can calculate how much higher or lower your return may be.
  • Lost by delay: you can instantly see how much money you would miss out on by waiting one year to invest.

Compound Interest Calculator

Determine how much your money can grow using the power of compound interest. Money handed over to a fraudster won’t grow and won’t likely be recouped. So before committing any money to an investment opportunity, use the “Check Out Your Investment Professional” search tool below the calculator to find out if you’re dealing with a registered investment professional.

* DENOTES A REQUIRED FIELD

Step 1: Initial Investment
Initial Investment *
Amount of money that you have available to invest initially.
Step 2: Contribute
Monthly Contribution
Amount that you plan to add to the principal every month, or a negative number for the amount that you plan to withdraw every month.
Length of Time in Years *
Length of time, in years, that you plan to save.
Step 3: Interest Rate
Estimated Interest Rate *
Your estimated annual interest rate.
Interest rate variance range
Range of interest rates (above and below the rate set above) that you desire to see results for.
Step 4: Compound It
Compound Frequency
Times per year that interest will be compounded.

De restulaten zijn

In years, heb je in totaal

Je storting is dan waard


The chart below shows an estimate of how much your initial savings will grow over time , according to the interest rate and compounding schedule you specified

Please remember that slight adjustments in any of those variables can affect the outcome. Reset the calculator and provide different figures to show different scenarios.


If you would start one year later with investing you would have less than if you would start today.

Total Savings in US Dollars
As you can see, your wealth grows quickly when you invest year after year. Waiting to invest can also be an expensive decision. Do you also want to start investing? Click here to compare the best brokers.

How to use the compound interest tool?

  • Initial deposit: Enter the amount you will deposit immediately.
  • Monthly deposit: Enter how much you want to deposit each month.
  • Expected return: Enter the return you expect to earn.
  • Variation: Enter how much you think the return can deviate up and down.
  • Compounding: Apply compound interest on a daily, monthly, semi-annual or annual basis.

What is compound interest?

Compound interest is also known as “interest on interest“. When you reinvest the return you earned, you earn interest on that as well. This can cause your wealth to grow exponentially, which allows you to build a large fortune if you have enough time. Compound interest is often referred to as the “8th wonder of the world”. Compound interest

In the chart above, you can see how compound interest causes your wealth to grow further and further. In this case, we deposit $100 monthly at a rate of 8%.

Why time is your best friend: lost return

To build a large wealth, you primarily need one thing: time. With the compound interest tool, you can immediately see how much it would cost you if you had one less year to let your wealth grow.For example, if you invest $100 monthly at a rate of 8%, you would achieve the following results:
  • 30 years: $150,042
  • 29 years: $137,396
This means that in this scenario, starting a year later will cost you $12,646 or more than 8% of the total return! For most people, setting aside a fixed amount of money each month is a suitable option. Do you want to know how to do this? Than read the special about ETFs.

What is the formula for calculating compound interest?

The formula for calculating compound interest is A = k(1 + i)t.
  • A (amount): A stands for the final capital, which you calculate using the formula for compound interest.
  • p (principal): is the amount that you deposit and on which you want to calculate compound interest.
  • i: this is the interest rate divided by 100. For example, if the interest rate is 8%, then i is 0.08.
  • t: the number of periods, for example 30 for 30 yeards.
If you invest $1000 for a period of 30 years at an interest rate of 8%, then you fill in the formula as follows:
  • A = 1000(1 + 0.08)^30
  • A = 1000(1.08)^^ 30
You can also use the formula to calculate compound interest on a daily, weekly, or monthly basis:
  • Daily: for i, enter the expected daily return, and for t, enter the number of days over which you want to calculate the amount.
  • Weekly: for i, enter the expected weekly return, and for t, enter the number of weeks over which you want to calculate the amount.
  • Monthly: for i, enter the expected monthly return, and for t, enter the number of months over which you want to calculate the amount.

Take variance into account

Many people use a compound interest calculator to calculate how much wealth they will possess on a certain date. It is important to take variance into account, because remember: past results do not guarantee future performance!When the economy performs well or poorly, investment results can turn out to be better or worse than expected. Within the tool, you can add variance to see how much wealth you would build up in a favourable and less favourable scenario.If you invest $100 per month for 30 years with a variance of 2%, your results could be significantly higher or lower:
  • At a return of 6%: $101,025
  • At a return of 10%: $227,793.
A difference in yield of 4% can make a 100% difference in your end capital! Compound interest variation

Reducing Your Variance: Strategy

If you want to increase the chance of achieving a stable return in the long term, it is best to reduce the variance or volatility. The best way to reduce your variance is to spread your investments over time. If you invest a large sum of money all at once, there is a chance that the timing will be wrong. For example, if you had invested money just before the 2008 crisis, it would have taken a long time to see a return: Crisis 2008 interest on interest rateBy investing a smaller amount monthly, you invest against both low and high prices, which allows you to benefit from an average return. The average return on the stock market was about 8% annually. Keep in mind that this return is subject to transaction fees and taxes.

Interest on Interest Visualization

Do you still not understand how interest on interest works in practice? In the table below, you can see how your capital grows further and further.
YearStarting amount10% interest
1$10.000$1.000
2$11.000$1.100
3$12.100$1.210
4$13.310$1.310,10
5$14.620,01$1.462,01
As you can see, the received interest increases further every year.

Last tip: estimating interest on interest

Don’t have a calculator handy? With the so-called 72 rule, you can quickly calculate how long it takes to double your money with compound interest. Divide 72 by the interest rate you receive, and you’ll quickly see how long it takes to double your wealth with compound interest:
  • 5 percent: 72/5 = 13.09 years
  • 10 percent: 72/10 = 7.2 years
  • 20 percent: 72/20 = 3.6 years

Frequently Asked Questions

With simple interest, you only calculate the interest on the initial deposit. With compound interest, you also take the interest earned on the interest into account.

You can get compound interest by reinvesting your interest or returns. For example, if you receive dividends, you can use them to buy new shares. You can add the interest on your savings account back into your account, which means you keep earning interest on your interest!

You can calculate returns over multiple years by taking into account both your returns on your investment and the returns earned on those returns. This type of calculation is also known as compound interest calculation. You can use the tool at the top of this page to easily calculate your returns over multiple years.

Do you want to get started with investing?

If you want to get started with investing and building your wealth, open an account with an online broker:

What are the 10 biggest listed companies?

Large companies have an enormous influence on the entire stock market, but how do you know what the largest company is?  One way to measure the success of a company is by calculating its market capitalization. You can do this by multiplying the share price by the total number of outstanding stocks. By doing this you end up with the market capitalization, also known as the total market value.The largest listed company is even worth more than the entire country of Brazil (1,800 billion!). This gives some perspective on how much these companies are actually worth.If you compare all these total stock market values, you end up with a list of the largest companies. Let’s take a look at the top 10 largest listed companies in the world (2021).

10. TSMC

Taiwan Semiconductor Manufacturing Company is the world’s largest independent manufacturer of semiconductors. The company specializes in making semiconductors for smartphones and computers. TSMC supplies a number of big names such as Apple and Huawei.

9. Alibaba (BABA)

Alibaba Group is a company with several web shops. Alibaba is often compared to its American counterpart, Amazon. Alibaba’s two main webshops, Taobao and Tmall, operate as a kind of market. Taobao acts as a trade forum for individuals and small businesses. On Tmall, Alibaba provides space for larger brands to offer items online.

8. Tesla (TSLA)

One of the biggest growing companies of recent years is Tesla. Tesla is an American manufacturer of electric cars, trucks, solar roofs and energy storage systems. The company was founded in 2003 by Elon Musk and has become increasingly popular in recent years.The share has grown in the last year from 80 to over 800 dollars per share! The demand for electric vehicles is increasing and this is clearly reflected in Tesla’s share price. Whether this company will continue to do well in the future remains to be seen as more and more competitors are entering the market.Tesla largest company

7. Facebook (FB)

Founded in 2004 by Mark Zuckerberg, Facebook is a company that runs several social media services. Facebook owns Instagram, WhatsApp and Oculus VR (a manufacturer of virtual reality hardware), among others. Facebook’s income is generated by the sale of advertisements, and they earn a nice amount of money doing this.

6. Tencent (TCEHY)

Tencent Holdings is a Chinese technology company that provides messaging services, social networking, online media, online multiplayer games, e-commerce and online advertising.

5. Google (GOOG)

You have probably just used this company to get to this web page. Alphabet, also known as Google, is a company that became famous because of the Google search engine. It is an ICT company that mainly makes money by selling advertisements.

Google largest company

4. Amazon (AMZN)

Amazon was founded in 1994 by Jeff Bezos and was one of the first large companies to sell goods over the internet. Originally, Amazon only sold books, but later other media were added and finally goods as well. Besides e-commerce Amazon is also active as a streaming service and as a cloud hosting platform.

3. Microsoft (MSFT)

Microsoft was at the top of the list for years but is no longer the most valuable company. Microsoft is an American technology company. This American company has its headquarters in Washington. They are known for their computer software, consumer electronics and even video game consoles. The company was founded in 1975 by Bill Gates and has become one of the most renowned companies worldwide with the rise of the computer.

2. Saudi Aramco (SAR)

Saudi Aramco is a Saudi Arabian oil and gas company. In 2020, it was the world’s largest oil producer and has the world’s third largest oil reserve. Saudi Aramco trades at $9.23 per share and has a total market capitalization of $2.028 billion. This makes Saudi Aramco the second largest company in terms of value.

1. Apple (AAPL)

Apple is perhaps one of the most well-known companies in the world. It is a technology company specializing in consumer electronics and computer software. Apple’s shares are currently trading at $126.66 per share with a total market capitalization of $2,126 billion. Apple is the first company in the world with a market capitalization of over 2000 billion dollar.

Investing in large companies

Investing in these large companies can be interesting since large companies tend to grow steadily in line with the overall market. In addition, they are companies that are not likely to go bankrupt during a recession. In a falling market, you may lose money in the short term, but in the long term it is often a smart investment.

Where can you buy shares of these 10 major companies?

Large companies often provide good returns in the long run. Are you confident that this growth will continue in the future? Then buying shares in these large companies can be very interesting! You can buy one of these shares with a reliable broker:
BrokerFeesRegister
Invest in stocks without commissions! Other costs applicable.
Avatrade buy sharesSpeculate on price increases and decreases with a free demo!
DEGIRO brokerInvest in stocks & ETF's against low fees.
Trade shares Plus500Actively speculate in shares by using CFD's. 82% of retail CFD accounts lose money.
Compare?Compare the best brokers & open a free demo!

Where can you actively invest in these great stocks?

More and more investors are choosing to actively invest in the shares of these large companies. By investing actively, you can anticipate the latest developments. Is one of these large companies launch a new product, for example? Then you can keep a close eye on the launch. If the product is very innovative, it can be a reason to buy the shares.A great place to actively trade CFDs is Plus500. At Plus500, with the click of a mouse, you can place an order for CFDs on several major companies within seconds. You can even place an order on a falling market, allowing you to open a trade even when there is bad news. Would you like to try the possibilities completely free and without risk? Then open a demo account using the button below:

What is the definition of big?

Of course, you may wonder whether measuring market capitalization is the best way to determine whether a company is big. Some companies, for example, have many employees or make a large, positive impact on their environment. It is also important to remember that the value of a stock fluctuates constantly, so the largest or most valuable listed company can fluctuate quickly.Some giants from the past are therefore no longer in this top 10 list. Investing in large companies can certainly be interesting, but always keep a close eye on the trends. This way, you avoid losing money when the prices suddenly drop significantly.

Investing definition: what does investing mean?

Before you start investing, it is a good idea to get to know the subject well. One way of doing this is by reading the definition of investing. We provide this definition in this article. On this page, we also list a few investment products and give you some general tips to get started with investing.

What is the definition of investment?

An investment is an action in which money is laid down for a shorter or longer period, with the aim of achieving financial gain in the future. When you invest money, you put money into a specific investment product in the hope of achieving a positive return in the future. This could be a share, bond or ETF among others.

Return on investment

An important part of investing is the return you get from it. The type of return you obtain depends on the investment product you invest in. Stocks pay dividends, for example, while bonds pay out interest. The prices of investment products can also fluctuate: when the price of a share rises, you can also make a profit.The return and risk are inextricably linked. As an investor, you receive a reward for the risks you take. More risky investments often provide a higher potential reward, but at the same time, you can easily lose money with them.

What types of investments are there?

The definition of investment is quite broad and can be made more specific by looking at specific investment products. In this part of the article, we look at the best-known investment products you can invest in.

Shares

When you buy shares, you become a co-owner of a company. Some companies distribute part of the profits in the form of dividends. If you buy stocks at the right time, you can also make a gain on the stock price. Do you want to know more about the definition of shares? Then read our extensive article What are shares?

Bonds

Bonds are also well-known investment products. With a bond, you lend money to a company or government in exchange for fixed interest payments. With a bond, you own a part of the issued debt of a certain party. At the end of the term, you as bondholder receive the full amount of the investment back. In the article what are bonds, we discuss in more detail how investing in bonds works:

Investment fund

Not everyone likes to select investment products themselves. If you fall within this group, it may be interesting to invest in an investment fund. An investment fund is a party that invests the money of you and thousands of other investors in a combination of investment products. Do you want to know more about investment funds? Then read our article What are investment funds?

Derivatives

You can also choose to invest by using derivatives. There are all kinds of derivatives: for example, options and CFDs. With a derivative, you can often achieve a high return in a short period of time. However, the risks on derivatives are also much higher than the risks on, for example, stocks. Do you want to know how investing in derivatives works exactly? Then read our article What are derivatives?:

Raw materials

Investments in commodities are also becoming increasingly popular. Raw materials such as gold, silver and oil are very popular and scarce worldwide, which means that their prices can rise quickly. You can trade commodities via a fund or by buying them directly physically on the stock exchange. Use the button below to read more about investing in commodities:

Alternative investments

The definition of investment is broad: you can invest in many investment products. Some people invest in art or stamps, for example. However, it is advisable to invest as much as possible in things you understand. That way, you avoid losing money by making unwise decisions.

Different investment styles

There are different investment styles and strategies: it is therefore not surprising that the definition of investment is so broad.For example, there is a clear difference between active and passive investing. When you invest actively, you try to beat the market as much as possible. You select stocks of companies of which you expect a large growth. Passive investors do not focus on beating the market and try to follow it. For novice investors, passive investing is often the best choice.There is also a big difference between investing for growth or investing for value. Investors who invest for growth select stocks that have great potential to grow in the future. These are, for example, technology stocks that have yet to prove themselves. Other people invest for value and look for shares of companies that have been around for a long time but are trading just below their intrinsic value.Do you want to learn how to invest? Take a look at our overview of investment strategies:

What is the difference between investing and speculating?

People sometimes wrongly confuse investing and speculating. However, there are clear differences:

  • Investing is more long-term oriented, while speculating is short-term oriented.
  • People who speculate take greater risks while people who invest try to limit their risks.
  • People who invest keep their positions open for a long time, while people who speculate often open and close positions quickly.
  • When investing, a large part of the return comes from dividend payments, while when speculating, price increases are the main source of income.
As you can see, the definition of investing is very different from that of speculating. Do you want to know more about speculating on the stock market? Then read our article on speculation:

How high is your yield?

The definition of your return is determined by your price gains and dividend payments. If the price of a stock rises from $100 to $120 then you make a $20 gain. If the company pays out $5 in profit that year than the dividend is $5 pounds.

Your return is then $20 + $5 = $25. Over the value of your initial investment of $100, you will then earn a 25% return.

What types of investors are there?

There are many parties that invest. The best known are:

Private investors

Private investors are people like you and me who decide to invest part of their savings. With the rise of the internet, anyone can invest nowadays. Do you want to know where you can invest best? Use the button below to directly compare the best brokers:

Institutional investors

Institutional investors are institutions that manage large assets: for example, pension funds or insurance companies. These parties often invest large amounts of money, which can cause share prices to suddenly rise or fall sharply.

Enterprises

Companies are also active on the investment market. They use the stock market to buy back their stocks or to hedge their risks as much as possible.

Starting with investing: 3 general tips

Do you want to start investing soon, and make your assets work for you? In that case, it is wise to prepare yourself well for this big step. We would like to give you three general tips that novice investors can use to prepare for their first investments.

Tip 1: Decide what kind of investor you are

There are many types of investor. There are investors who prefer to make as much profit as possible and do not mind taking a bit more risk, but there are also cautious investors. Before you start investing, it is good to determine exactly what kind of investor you are. What kind of investor you are, determines what investment strategy suits you best.

Tip 2: Find a good strategy

The best investors always trade according to a certain strategy. Before you actually add shares, options or other investment products to your portfolio, it is good to determine your strategy. You can search for various strategies, and you determine for yourself which strategy suits you best.

Tip 3: Determine your goal

Finally, you determine the purpose of your investment. For example, how much money do you want to earn and within what time frame? Your objective also influences the optimal investment method. That is why it is important to determine your goal before you actually start investing.

How can you invest with fake money?

Today I received a question in the mail as to whether it is possible to invest with fake money. The answer to this question is fortunately ‘yes’! By practising with fake money, you can discover if investing is something for you. But where can you actually invest with fake money and how do you go about it?

Where can you invest with fake money?

There are several brokers where you can practice investing by using fake money. The great thing about investing with fake money is that you can clearly see the results you would achieve in the real world. Therefore, it is certainly advisable to practice with fake money first to find out if investing is for you. Below we discuss a few options where you can invest with fake money:

eToro: investing in shares with fake money

Would you rather buy & sell stocks for the long term yourself? Then it is attractive to build a virtual portfolio! With eToro’s demo software, you can buy and sell shares with fake money, completely without risk. In this way, you can try out different investment strategies without risk.At eToro, you also have the opportunity to follow other successful traders. You then automatically open the trades of other users in your account. As soon as you are ready, you can deposit money at eToro: you can then buy and sell all shares without paying commissions (other fees applicable). Use the button to open an account at eToro immediately:

Plus500: Try active trading

One of the best places to trade with fake money is Plus500. At Plus500, you can use a demo account to try trading CFD’s on stocks, commodities, Forex and more, completely risk free. The beauty of a fake account is that you can’t lose a cent: the money is entirely fictitious!This makes it possible to discover how skilled you are in trading. This is because the conditions within the demo account are identical to the real conditions.Do you want to try trading with fake money at Plus500? Then use the button below to open an account at Plus500:

What are the pros and cons of investing with fake money?

Investing with fake money has its advantages. By first practising with fake money, you can for example try out different brokers and strategies. By exploring the stock market without any risks, you will discover which way of investing suits you best without having to lose money. Moreover, investing with fake money makes it easier to get used to making decisions based on your ratio.

However, it is important to be careful with your fake money investments. For example, it is a lot easier to make rational decisions when you invest with fake money. Moreover, on a demo account you often trade with a large amount of money, which makes it easier to spread your risks. When you trade with a smaller amount of money, you can’t buy as many investment products, and you are more likely to blow up your account.fake money investing

What is a good way to use the fake money?

Despite its drawbacks, a fake money trading account can be very rewarding. It is important, however, to see your trading account as more than just a toy. Use the account to try out different options and take enough time to think over your decisions. By evaluating your investment behaviour, you can ensure that you make better decisions in the future.

However, it is important to make realistic decisions: do not invest randomly in investment products and pretend the money in your account is real.

Getting started with fake money

In the beginning, investing can be quite overwhelming: you have so many choices & possibilities that all contribute to your success. It’s wise to start simple, don’t fill up the charts with all sorts of complicated analyses and technical lines right away.To keep an overview, it is much smarter to focus on a select number of securities first. For instance, you can decide to keep an eye on ten or so stocks and ten or so commodities. Within these securities, you then look for certain patterns every day.Especially recurring patterns are very interesting: you can anticipate on this! Capitalizing on recurring patterns in charts is part of technical analysis, where we do not take the news into account and invest mainly based on what we see in the chart.

Example of an investment

Suppose; you have found a share in your account with fake money that moves between two points: there is a consolidation. You can anticipate this by selling at the highest point and buying at the lowest point.With modern investing, you can also open a position on falling prices: you do this by opening a short position. You can also try short selling with the fake money on your account.When the price of Q stock moves back and forth between a price of $1 and $2, you can decide to short sell at the price of $2 and to buy at the price of $1. You can then by means of an order close the position automatically as soon as the point has been reached where the price often reverses.

Ready to invest with real money?

With a fake money account, it is possible to switch to a real account at any time. With a real account, you can trade with real money in stocks and other financial products.However, it is important to be careful when switching from fake money to real money. Do not underestimate what it means to invest with your money: a real loss feels a lot more painful than a fictitious one. Many investors who suddenly start investing with real money make many mistakes: they act on their emotions and lose a lot of money as a result. Therefore, it is important to build up real money investing slowly.The great thing about Plus500 is that you can start trading with a deposit of, say, $100. It’s wise to start with a low amount; that way you don’t run too much risk right away. Use the button below to open an account with Plus500 immediately:

How can you invest in a mutual fund?

Do you want more return than on your savings account, but is investing yourself is not an option? Choose for investing in a mutual fund! With an investment fund, you can have your money invested automatically, which means you can still achieve a nice return without having to invest time. But how does investing in an investment fund work, and where can you do this?

How does investing in a mutual fund work?

Investing in an investment fund is relatively easy. Most time is obviously spent in making a selection: which investment fund is the best? As soon as you have decided this, you only have to deposit the minimum amount, and you can start investing immediately.

With an investment fund, you receive so-called units. The fund invests all the assets of the clients and divides the return over the participants in proportion to the amount invested. So, you receive the part of the return to which you are entitled and this amount is directly reinvested in most funds.

So, once you have found a fund, it is not difficult to start investing immediately!

Where can you invest in a mutual fund?

You can invest in a mutual fund at an online broker. A broker is a company that can buy financial securities on your behalf. Opening an account at a broker is free. You do pay money for the execution of transactions: it is therefore important to compare the different brokers with each other.

A good broker for trading investment funds is DEGIRO. At DEGIRO, you can invest in an investment fund without paying any purchase and selling costs. Do you want to try out this broker? Then open an account at DEGIRO immediately:

What are the advantages of investing in a mutual fund?

Many investors choose an investment fund because of its convenience: you do not have to look after it much as the fund manager takes all the difficult decisions. Because it is possible to start with small amounts, even as a novice investor you can immediately get started with a fund.

Another major advantage of investing in a fund is that you automatically spread the risk. After all, a fund invests in a broader selection of shares, which means that with one investment you immediately invest in a series of investment products.

However, it is advisable to carefully examine what the fund invests in. Not every fund is as diversified as you might think and only invest in a handful of shares.

investment fund

How much does investing in a mutual fund cost?

The costs between investment funds can differ greatly: with some funds, you pay high management costs. Especially with some active funds, the costs can be high. This is because active funds often have to hire many analysts. Some funds also charge performance costs: when the fund performs well, you pay part of the return back to the fund.

It is wise to be careful with active funds: active funds rarely succeed in beating the market in the long term. Since the costs of an active fund are high, an index fund can be more attractive in many cases.

An index fund is a passive fund that automatically invests in a basket of shares. Because the investment decisions are taken automatically, there is no need to pay expensive analysts. This means that when you invest in an index fund, you only pay the buying and selling costs.

What returns do you get with investment funds?

The return on an investment fund can fluctuate greatly. The price of an investment fund rises or falls depending on the value of the underlying securities. In addition, many funds also pay out dividends. When a fund does not pay dividends, the dividends are usually reinvested.

The average return of a fund can fluctuate a lot: over a long period of time, count on a return of between 6 and 8 percent on an annual basis. Of course, there are always specific regions that do much better or worse. It can therefore be smart to spread your risks over different investment funds.

What are the risks of investing in a mutual fund?

Investing in a mutual fund is not without risk. The risks of investing in an investment fund are certainly lower than the risks of investing in individual shares. Nevertheless, even with an investment in an investment fund, you can certainly lose money.

You can lose money through price risk: the price of the fund will fall and your investment will be worth less. There is also a debtor risk: if one of the companies in the fund goes bankrupt, you can lose a large part of your investment. If the interest in the stocks in which the fund trades falls, it is difficult to sell your shareholding: this is also known as the liquidity risk.

When you invest in funds that invest in foreign stocks, you also face currency risk. When your currency depreciates, you can lose money as you get less money back when you sell the investment. Interest rate increases can also reduce your return and finally, there are also geographical / sector-specific risks.

Therefore, remember that investing is never without risk: only invest in investment products you understand with money you do not need.

What types of funds are there?

There are different types of investment funds: with an equity fund, for instance, you only invest in shares and with a bond fund only in bonds. If you want to spread your risks as much as possible over different investment products, you can choose a mixed fund. With a mixed fund, you invest in a combination of investment products. If you want to take more risks, you can also choose a hedge fund: a hedge fund tries to beat the market by using derivatives.

Best strategy for investing in a fund

When you want to invest in a mutual fund, you don’t have to make many decisions. However, this does not mean that you can sit back and relax: you still have to decide how to invest in the fund. You can choose to invest a considerable amount in the fund immediately. However, for most people this is not the best way to invest in a fund.

It is often smarter to spread your investments. This way of investing is also called dollar cost averaging. If, for instance, you deposit $1000 every month, you will step in at both the most attractive and the least attractive moments. In this way, you will achieve the average result of the fund.

Choosing a fund

Yet, investing in an investment fund is not necessarily easy: you must first decide which fund to select. The choice you make has an enormous influence on the final result: it is therefore important that you choose a mutual fund that suits your investment objective.

When selecting an investment fund, risk and return play a crucial role. Of course, the return is crucial: in the end, we all want to make money, we do not put our money in an investment fund and then lose money.

Yet, it is important not to lose sight of the risk. As soon as you start investing in a mutual fund, you must pay attention to, among other things, the drawdown or the maximum amount that the fund has been in a loss. It is also wise to look at how the fund dealt with the credit crisis in 2008.

Is an investment fund an attractive investment?

Whether investing in an investment fund is attractive depends entirely on your personal situation. If you select good funds, you will achieve a much higher return with an investment fund than with a savings account. So, it is definitely not a stupid move to put part of your savings in an investment fund.

A disadvantage of the investment fund is the often high transaction costs. The fund must be managed and a part of the profit goes to the manager. The return is therefore lower than when you would have carried out the activities of the fund yourself. When you are interested in investing, and you want to try this out for yourself, then this can be an even more attractive option.

When you want to start investing yourself, it is wise to first try it out by means of a demo. With a demo, you can test the possibilities without any risk. Click here to see where you can try investing for free >>.

Conclusion: is it smart to invest in a mutual fund?

Investing in an investment fund is advisable for almost everyone. Especially with index funds, you can achieve a nice, average and stable return. By periodically investing, you take away the stress of timing the market, so that even without knowledge you can profit from the developments in the stock market. Moreover, due to the power of interest on interest, your capital will grow exponentially in the long run: early entry is therefore recommended.

How much time does investing consume?

Many people ask me how much time trading consumes. It’s not easy to answer that question because the time you invest in trading is dependent on your strategy. However, we can give you an indication of the minimum amount of time that it will take to become a successful trader.

Do you want to spend little time on investing?

If you don’t want to spend a lot of time investing, you can choose to invest in an ETF. An ETF is a fund that automatically invests your money in a basket of shares. You can then periodically invest a fixed amount: by doing so you avoid investing all your money at the top of the market.

You just have to set aside some time to select one or more funds that suit you well. Determine how much money you want to invest monthly and you no longer have to actively keep track of what happens with your investments.

A good broker to invest in ETFs is DEGIRO. At DEGIRO you do not pay any purchase and sale costs when you invest in funds from the core selection. Use the button below to directly open an account with DEGIRO:

Do you want to spend a lot of time on investing?

Do you like to actively keep an eye on the news? Would you like to decide for yourself in which companies you invest? Then active investing could be a good choice for you!

As an active investor, you have to keep a closer eye on the market. You can choose shares to hold for years. Some people even decide to trade the sock markets more actively and open several new orders each week.

A good broker where you can actively trade in stock CFD’s is Plus500.  At Plus500 you can actively speculate on the price development of the market with the help of CFDs. Use the button below to open an account directly:

The amount of time depends on your strategy

The time you need to invest depends on the strategy you choose. Let’s look at the three most common profiles, so you can see which form of trading suits you best.

As an intraday trader, you are very active. You keep a close eye on the price, and you’re busy opening and closing positions all day long.

As a day trader, you look at what the price has done all day. You determine your strategy over the weekend and apply this strategy daily.

As a traditional trader, you hardly follow the price developments. You buy or sell stocks, but your focus is mainly on the future and not on getting the highest daily profits.

As an intraday trader, you are always trading

You are a very enthusiastic trader who spends several hours watching the price developments every day. You buy and sell stocks, commodities and currency pairs on the four-hour, one-hour or minute chart. Over the course of a day, you open up multiple positions. As an intraday trader, you’re trading intensively and when your strategy works, you maximize your profits.

As an intraday trader, you spend two to eight hours a day trading. Your investing or trading is your primary source of income; you watch prices like a hawk and try to profit from the slightest movements in the market.

As a day trader, you profit from a minimal time investment

You watch the price movements as much as you can, but you don’t do this in real-time. Day trading is a profitable trading strategy that can be combined with a day job perfectly. As a day trader, you pick your investments over the weekend based on technical analysis, and you create a watch list.

As soon as you have formed the watch list, you only need to check your picks on that list every evening. Because you have already made a list of what to watch, you only need to check whether your predictions were accurate or not. Day trading doesn’t take up a lot of time: about two hours on the weekend and half an hour every evening. You can still make a lot of money as a day trader.

The traditional trader isn’t focussed on immediate profit

As opposed to the intraday trader and day trader, the traditional trader is a bit more conservative. Based on the advice of asset managers or gathered by reading annual reports, the traditional trader decides which financial instruments to buy. The time span of the traditional trader is long; the strategy is based on making money over a long period of time.

As a traditional trader, you aren’t investing a lot of time. You manage your portfolio by checking in from time to time on how your investments are doing. Traditional trading is very convenient for building up to a certain amount over a long period of time and is not aimed at generating short-term income.

Combine!

By combining the several trading styles, you get the best of both worlds. You don’t have to invest a lot of time, and you can still profit quite a lot. By building up an income as a day trader combined with a more traditional approach, you profit twice without having to invest a lot of time.

How can you invest without risk?

Many people are looking for risk-free investments. But does risk-free investing really exist, and how do you go about it? In this article, we look at how you can best invest with minimum risk.

Does risk-free investing exist?

Risk-free investing with real money is unfortunately not possible. Investing and risk are inextricably linked. However, as a new investor, you can choose to invest risk-free with a demo. In this way, you will not lose any money.

How can you invest without risk?

Would you like to invest entirely without risk? You can! Nowadays, several brokers offer the possibility to try investing without any risk by means of a demo account. Opening an account with a broker often only takes a few minutes, after which you can immediately start investing.

eToro

It is also possible to try buying and selling shares without any risk. At eToro, you can use a demo account to start buying shares with a fictitious amount without risk. Use the button below to open a demo account directly at eToro:

Plus500

At Plus500, you can try CFD stock trading risk-free with a demo. Once you open an account, you will immediately receive a $40,000 notional amount into your account to try out the possibilities. Use the button to open an instant account at Plus500:

Relationship between risk and return

Have you read somewhere on the Internet about a strategy that you can use to invest 100% risk-free? Then ignore the site and click away immediately! There is no such thing as risk-free investing with real money.When you start investing, you will soon discover that risk and return are linked. Speculative investments have a higher potential return, but also a higher rate of return.There is actually a spectrum of investments where bonds are seen as relatively safe options and derivatives as very risky. Which way of investing suits you best depends entirely on your perception of risk.

risk free investing

Investing without loss

The long-term goal of investing should therefore not be risk-free investing. No, the goal should be investing without loss. It is not possible to guarantee this, but as an investor, you should aim for a positive return in the long term.It is important to draw up a good trading strategy, this way you will increase the chance of obtaining a positive result. An important part of this strategy is a good vision on the relation between return and risk. In this part of the article we will discuss a few options which you can use to manage your risks in a smart way.

Diversification

It will not be risk-free, but by applying diversification in a smart way, you increase the chance of a good return. By spreading your investments over different sectors, moments and products, your portfolio becomes less volatile.If, for example, you invest only in the oil industry, a falling oil price can immediately put all your investments in the red. If this is only a small part of your portfolio, positive results in other categories can compensate.

Hedging

Another technique that reduces the risk of falls in your portfolio is hedging. With hedging, you look for securities with a negative correlation. This means that one security often rises when the other falls. You can then, for instance, invest in the US dollar and the gold price at the same time. When the economy is not doing as well and the dollar is falling, you often see people flee into gold.When you invest in shares, you can, for instance, buy shares of cyclical and anti-cyclical companies. Cyclical companies do well when the economy is growing, while countercyclical stocks do less well.

Limit your exposure

When actively trading, it is advisable to limit your exposure within one position. When actively trading, your investment balance is the asset you are working with: if you lose everything, you are literally ‘out of business’.You can limit your exposure by risking a maximum percentage of your investment account on each investment. For example, if you never risk more than one or two per cent on a single trade, you have a lot of room to manoeuvre.

risk free action

Use a stop loss

Risk-free investing is still not possible, but with a stop loss, you can at least limit the risk. First, investigate whether the stop loss offered by the broker is guaranteed. With some parties, the price can still drop considerably if the stop order cannot be executed immediately.A stop order automatically closes your investment position when a certain loss is reached. In this way, you can manage your investments well even when you are absent.

Evaluate your investments

Finally, it is important to regularly evaluate your investments. See if the decisions you have made are working out. If not, it may be wise to change your approach. After all, as Einstein said, insanity is trying to do the same thing and expect another result. Therefore, don’t be stubborn, accept that you are wrong and look for a better solution.

From risk-free to low-risk

In this part of the article we will discuss what you can invest in with little risk. It may not be risk-free, but it comes pretty close.

Savings

Of course, you can put your money in a savings account. In theory, saving money in a bank account is risk-free; in practice, however, you can be sure that your assets will slowly lose value under the influence of inflation and taxes. Depending on your definition of risk-free, money in a savings account is not without risk at all.

ETF

A good way to invest with relatively low risk is to buy ETFs that follow a large basket of shares. An ETF passively tracks a particular market and by tracking the world you are really only dealing with systematic risk (the chance that the entire market collapses).To deal with this risk as well, you can choose to step in staggered. By periodically depositing a fixed amount in the ETF, you avoid losing a lot of money by investing at the top. At DEGIRO, you can invest in ETFs completely free of purchase and sales costs. Use the button below to immediately open an account at DEGIRO:

Bonds

If you want to receive a periodic fixed payment, bonds can be a good choice. With a bond, you periodically receive a fixed interest payment and at the end of the term, you receive the sum of the bond back. However, bonds are not completely risk-free: if the institution behind the bond goes bankrupt, you still lose your deposit.

Tip: how to start?

After you have opened an account, it can be difficult to know where to start. With your demo, you can try investing with fake money. To achieve good results with investing, it is important to develop your investment system. In this article, I will explain how I invest myself with a practical example.

Please note that the example in this article fits my investment system. At the end of the day, everyone has a different investment style, and it is important to experiment, so you can discover which way of investing suits you best: you can do this by investing a small amount.

Looking for key levels

In my investments, I make a lot of use of technical indicators. Before you delve into complicated indicators such as moving averages and Fibonacci levels, it is wise to start with only important levels. Important levels are levels which the price does not seem to be able to break through.Discovering these levels may not make it possible to invest entirely without risk: however, it does increase the chances of success. To discover an important level, it is wise to zoom out a little, by zooming out you get a better idea of the market situation and can discover these levels.

Example: investment on AUD USD

At the time of writing (16 June 2013), the price of the Australian dollar against the US dollar is at a crucial low level that has not been broken since 10 November 2010, as the weekly chart below shows.weekly chart AUD USDWhen this level was tested on 11 June and the price then rose again, I took a buying position on AUD USD. You then make money when the price rises. Last time the price moved up after hitting this level. By placing the stop loss just below the crucial level and by placing the take profit much higher, I either earn a lot or I lose a little.AUD USD max lossBy using a similar strategy, you can increase your profits! Of course, risk-free investing is not possible, but by starting with a small amount you can discover whether you can invest profitably.This example is not investment advice: always do good research and remember that you can lose money with investing. When you start investing with real money, it is not possible to trade without risk in for example shares.

Perfect investment: what is the best investment?

Are you looking for the perfect investment? As an investor you are looking for the most profitable investment. In this article we examine the best investments suitable for you.

Is there a perfect investment?

There is no universal perfect investment. There is, however, a perfect investment for you as an individual. It is therefore important to determine for yourself what you want to achieve with your investments. Some investment products carry higher risks, but also offer higher potential returns, while other investment products mainly offer a stable return. In this article, we discuss the most profitable investments.

Are stocks the best investment?

For many people, investing in stocks is the perfect investment. In both Europe and the US, the profit prospects for companies are still good. Especially when you compare shares with other investments, they perform much better than many other investment products in the long run.

You can choose to invest in shares with a commission-free broker. In this way, you do not lose any money in transaction costs, enabling you to achieve better results. A reliable commission free stockbroker is eToro, use the button below to directly open an account:

Profitable investment in derivatives

For active investors who are not afraid of a little risk, derivatives are the perfect investment. Derivatives come in all shapes and sizes: options, futures and CFDs are some examples. CFDs in particular are becoming increasingly popular, partly due to the transparent pricing of the security.With Plus500 you can try trading CFDs entirely risk-free with a free demo. Use the button below to instantly open a demo on Plus500:

Investing in a fund is for many people the best investment option

For the vast majority of investors, investing money in an investment fund is the best option. Index funds or ETF’s, in particular, are attractive, as the costs are low for this type of fund. With an index fund, you can automatically trade in a basket of stocks. This allows you to spread your risk: if one investment product does not perform well, you can absorb the fall with favourable results in another investment product.What makes ETFs profitable is the fact that you can buy them periodically with a small amount of money. As a result, you never step in with all your money at the peak of the market, which increases your chances of achieving a profitable result.Would you like to try investing in ETFs yourself? In that case, you should open an account with DEGIRO! At DEGIRO you pay no transaction costs when you buy funds from the core selection. Use the button below to directly open an account with DEGIRO:

Commodity trading

If you are currently looking for the perfect investment, then commodities may also be an attractive option. When the global economy picks up, the demand for raw materials will increase and so will their prices. But even if the economy slows down, there will still be a demand for certain raw materials. Think, for example, of oil, which is still enormously important to our economy, or gold, which is often used as a safe haven.As an investor, you can invest in commodities in times of crisis, which can compensate for losses on, for example, shares. Certainly in the long term, there will always be a demand for raw materials.

best investment

How to perfectly invest in commodities?

It is important to select the right raw material. In times of uncertainty gold often rises, while the demand for a building material like steel rises when the economy is doing well. Due to the scarcity of many raw materials, prices will continue to rise sharply in the long term, as a result of which raw materials can be seen as the perfect investment.Trading in CFD raw materials is best done with the broker Plus500. Plus500 allows you to trade without paying commissions and with a demo of $40,000. For the long term it is wiser to invest in commodities either physically or through a fund. Do you want to know where to invest in commodities? Take a look at our overview of brokers:

Investing money in bonds

Investments in bonds have not been the best choice, at least over the last 100 years. The profitability of bonds lags behind the profitability of stocks. Bonds have a safe image: this too is not entirely justified. You can lose a lot of money with bonds, especially when interest rates rise. The price of the bond then drops, and you cannot put the money stuck in the bond into more profitable options.Moreover, the highest profits can only be achieved with the very risky bonds. An example of such a risky investment is buying a bond of an unknown South American company. If this company subsequently goes bankrupt, you lose the full amount of your investment.

Bitcoins are the perfect investment for some

For some investors Bitcoins are the perfect investment. When you buy a Bitcoin, you are actually investing in hope. The currency itself is hardly used, but the blockchain behind the Bitcoin is very promising. You have to take an active stance to get a good result with an investment in the Bitcoin: if you step in at the wrong time, you can quickly lose many thousands of dollars.Bitcoins are therefore by no means a safe investment and, in my opinion, the cryptocurrency does not yet deserve the predicate of perfect investment. Nevertheless, for the investor who does not mind taking greater risks, it may be attractive to invest a small proportion of his or her assets in the cryptocurrency.

Is gold the most profitable?

Gold is the perfect investment for the eternal pessimist. If you think the system is going to collapse, you can invest in gold. In practice, gold does particularly well when the stock markets fall in value. At such a time, an investment in gold can protect your investment portfolio: we call a similar construction a hedge.A major disadvantage of investing in gold is the fact that you do not receive any income. Gold is stored in a safe and does not generate additional value. With an investment in gold, you therefore do not receive any income in the form of dividends or interest. In my opinion, investing in gold is therefore not perfect: yet gold can be the best investment option in times of crisis.

Don’t do it (too much): saving

Saving is never the best or most profitable. As a result of inflation, the price level rises every year. The interest rate on savings is low, which only decreases the value of your assets.Incidentally, this does not mean that you should not save at all: it is, of course, important to set aside enough money to be able to pay for unexpected repairs, for example.

Investing in real estate is perfect for people with a lot of capital

A real estate investment can be very attractive, as long as you have enough capital and income to raise the money. When this is the case, real estate allows you to benefit from complete control. You can both build up an income by renting out the property, and you will benefit from increases in value in the long term. In addition, real estate protects you against inflation.Investing in housing is very attractive: however, it is important to perform solid research. Investing in real estate is only profitable for the investor who researches the possibilities. There is a lot of time involved in finding the perfect home, and you also have to take the necessary steps to manage it. Therefore, do not think to light-hearted about investing in real estate!

What is the best time to invest?

If you want to make the perfect investment, you also need to select a good entry point. If you want to actively beat the market, you will need to analyse the market carefully. By stepping in at a relatively cheap moment, you can achieve a price gain. In most cases, it is not easy to predict the market well: for most people the entry moment is therefore not critical.

For most people, the best strategy is to invest money in the stock market periodically. Beating the market is very difficult and the stock market can crash at any time. It is a shame to lose a large part of your investment when the price drops sharply. By investing a smaller amount monthly, you invest money both when the stock market is under- and over performing. This makes it possible to benefit from the average stock market return, which is between six and eight percent on an annual basis.In addition, remember that time is more important than timing. If you happen to time an investment well, you can expect a high price gain from it. However, if you step in at a less fortunate moment, then this is not a disaster either. As long as you have enough time to wait for recovery, you can achieve a positive investment result in the long term.

perfect investment

How do you decide what is the best investment for you?

What is the best investment is rather personal. We are therefore happy to help you determine what is the perfect investment for you. Incidentally, this does not always have to be the most profitable investment: you should still be able to get some sleep at night.

Define your goal

Before you can determine the perfect investment for you, you must first determine what you want to achieve with your money. Do you want to access your money in a few years or do you have decades? If you have more time you can afford it to take higher risks. By drawing up a plan with a clear goal and time frame, you can determine which investment product suits you best.

Quantify your investments

Investments are expressed in hard numbers: your return is a percentage and the money you spend is a number. It is therefore wise to assess the amount of money you can invest (periodically). This allows you to determine to what extent you can spread your money over different investment products and strategies.

What is your risk appetite?

Before you decide what the best investment for you is, you need to establish your risk appetite. The risk appetite varies greatly from person to person. If you don’t mind taking bigger risks, your willingness to take risks is higher. More speculative investment products such as bitcoins and derivatives are the best option for you. Would you prefer to build up a bit more capital prudently? In that case, it is better to invest in relatively safe stocks and bonds.

Pay attention to the costs

Many people forget to pay attention to costs in their search for the perfect investment which is a shame. When you waste a lot of money on high transaction fees, you reduce the chance of achieving a profitable result. Therefore, always study the costs of the investment product you want to invest in first.

Diversify & stay alert

If you are looking for the perfect investment, it is especially important to spread your investments over different products & time. A smart investor always stays alert: after all, the future is uncertain and managing your risks increases your chance of success. In addition to your physical investments, you can use options to protect your portfolio. It is always advisable to keep enough cash in a savings account, so you can enter the market as soon as there is a chance of a high return.If you are looking for the perfect investment, always remember to diversify your investments to reduce the risk of loss. Another good tip is to explore opportunities to invest in emerging countries. In addition, when making your choice, always pay very close attention to the dividend yield of companies.

Investing with high returns

Of course, we only invest with one goal in mind: achieving the highest possible return. But how can you actually achieve the highest possible return on your savings? In this article we discuss which investment methods you can use to achieve the highest return.

How can you achieve a high return from investing?

You can certainly achieve a high return with investments. However, return and risk are inextricably linked: a higher return therefore entails a higher risk. We start the article by discussing the investment products & strategies with which you can achieve a very high return. Determine for yourself whether you can bear the risks of losing money.

Investing in high-yield shares

Many people are convinced that investing in shares involves a lot of risk. This picture has arisen because some investors have lost savings in the past by trading on the stock market. However, if you apply a good strategy, you can achieve a high return on stock investments in the long term.Over the last 80 years, statistics have shown that investing in shares gives a higher return than all other forms of investment. However, many novice investors are impatient and hope to make large profits within one or two years. However, this is a very unrealistic expectation: it is therefore important to invest in shares with patience. 

Shares versus savingsShares usually perform better than savings

Increase returns on shares

You can achieve a high return with shares by betting on price gains. If this is the plan, it is important to spread your chances. Patience is a virtue, as the stock market will not always move up.It is also possible to achieve a good return with shares that pay out a high dividend. Some stocks pay out several percent in dividends a year. When you buy a stable dividend stock in an all-time low you obtain a fixed high return on a monthly basis!If you really want to achieve an extremely high return, you can invest in more exotic stocks. Growth stocks in start-ups can sometimes increase in value by tens or even hundreds of percents. There is a chance that the company will go bankrupt, as a result of which you will lose the entire investment. It is therefore important to investigate the company behind the share well.You can also achieve a high return on shares by investing in penny stocks. Penny stocks are shares worth a few cents: this allows the smallest price fluctuations to yield a 100% return. When you invest in these types of risky shares, you are also more likely to lose your investment.

A high return with trading in CFDs

With CFDs, you can speculate on short-term price fluctuations on, for example, shares and currency pairs. In the short term, the prices of shares move strongly up and down: by reacting smartly to this, you can achieve a positive return under all market conditions.What makes CFDs unique is the leverage effect: by applying leverage you can achieve a higher return in the short term. The risk is also higher with CFDs, which makes it important to apply a stop loss order.With a stop loss order, your position is automatically closed in the event of a certain loss. This protects you against possible losses and allows you to achieve a good investment result with CFDs.

Investing in exotic ETFs

ETFs or index funds are better known for their stable returns rather than their high returns. With an index fund, you can automatically invest in a basket of shares: most people use this way of investing to track an index like the FTSE. However, ETFs also allow you to achieve a high return, at least if you are prepared to take a higher risk.There are ETFs on more risky investment products: think for example of an ETF on cryptocurrencies or an ETF on cannabis stocks. An advantage of using an ETF is that even with these types of risky products, you still apply some diversification: this reduces the chance of losing all your money at once when a company goes bankrupt.Do you want to invest in ETFs yourself? A good broker for investing in ETF’s is DEGIRO. At DEGIRO you do not pay transaction costs when you buy funds from the core selection. This allows you to achieve a higher return without taking bigger risks. Use the button below to open an account with DEGIRO:

Investing in high-yield bonds

High-interest rate bonds are issued by companies with a weak financial position. These bonds are popularly known as junk bonds. The interest rate on these bonds is often high: 7-9% is not uncommon. The party releasing the bonds has to pay a higher interest to attract investors. However, there is a chance that the company behind the bond will go bankrupt, as a result of which you could lose the full amount of your investment.If you still want to achieve a higher return with bonds, but prefer not to buy bonds yourself, then you can also choose to invest in an ETF that buys bonds with a high-interest rate. 

increase yield

Speculate in options

You can also achieve a high return with options. With an option, you buy the possibility, but not the obligation, to buy a certain security at a certain price. For example, you can buy an option for $2 that allows you to buy a certain share for $10. If the share price subsequently rises to $12 or more, you can achieve a positive return.When the price moves in the right direction, you can achieve an enormous return: at a share price of only €14, your return is already 100% on your initial investment of $2 per option. At the same time, you can also lose your entire investment with options. Options expire at a certain moment and when the option is worthless at the end of the term, you lose the full deposit.You can further increase your return on your existing investments by issuing options. You will receive a premium for writing an option. If you make the wrong decisions, you can also lose a great deal of money by writing options. Would you like to know how you can achieve a high return by investing in options? Then read our guide on investing in options:

Investing in real estate

You can also achieve a high return with investments in real estate. Of course, you can buy shares in companies that are active in the real estate sector. There are also many real estate funds with which you can, for example, co-finance a large office building. When investing in real estate, it is important to carefully analyse the underlying party: if the company behind the project is not reliable, you can simply lose the full amount of your investment.Do you have a little more capital of your own? In that case, you can also achieve a high return by buying a property yourself. For example, a while ago I bought a small flat in Amsterdam than I am renting out now. The great thing about this construction is that you only have to put in a small part of the money yourself which allows you to benefit from a leverage. Over my deposit of €50,000 I receive €18,000 annually in rental income.However, you do need to pay close attention when investing in real estate yourself. After all, you are taking on debt and if you select the wrong property, you can lose everything. Would you like to know more about investing in real estate? Read our guide on the different investment methods you can use:

Investing in cryptocurrencies

Another way in which you can achieve a very high yield is by investing in cryptocurrencies. Some people actively trade the price of crypto’s: one day a cryptocurrency like the Bitcoin can go up or down by as much as ten percent. If you keep a close eye on the market you can achieve a high daily return.When the price of a promising crypto is at a low point, it may also be wise to buy it for the long term. After 2018, for example, cryptocurrencies decreased sharply in value: at the low point you could buy a Bitcoin for around $4000. Two years later, in 2020, the price reached yet another new record which would have allowed you to achieve a return of almost 500% in two years.Before investing in cryptocurrencies, it is important to remember that they are highly speculative & new investment products. It is therefore uncertain which currency will be widely used in the future. Cryptocurrency investments are therefore only suitable for people with a high-risk appetite.

invest high return

Investing in loans

Nowadays, there are also platforms where you can invest in loans. This way of investing money is also called P2P borrowing. People or companies that need money can take out a loan on the site. On many platforms, the loans are merged, so you can reduce the risk a little. However, these types of P2P loans are very volatile and there are plenty of stories of platforms that did not pay out in the end. That’s why it’s important to be careful when you lend money to others.

Investing in an IPO

An IPO or initial public offering is the introduction of a new company to the stock market. By buying shares during an IPO, you can achieve a very high return. This is certainly the case with promising (technology) shares.I can still remember how I believed Facebook was overvalued during the IPO in 2012. In the short term, I was right: the price halved fairly quickly. In the meantime, however, the price has risen to ten times its value. In 8 years you could have achieved a return of about 1000%.Of course, you have to be careful with an IPO: not every IPO is equally successful. You often see that new shares are introduced to the stock exchange relatively cheaply. Companies want to prevent shares from collapsing on the first trading day. That is why it is certainly worth investigating whether any interesting IPOs are coming up.Facebook koersverloop 

Investing in start-ups

Another way to achieve a high return is by investing in start-ups. You can find all kinds of websites on the internet where you can invest in a start-up. This strategy is a bit of a hit & miss: when you invest in a mediocre start-up you lose everything, while when you select the right company you can achieve an enormous return. Companies like Facebook and Microsoft were once small start-ups that were run from a garage.It is even better to invest money in your own business. When you have a good idea, and you can turn it into a good plan, you can make a lot of money with it. However, entrepreneurship is not for everyone, but the theoretical return on an investment in your own company is unlimited.

Your money in a high-yield savings account

If you ask me, it is in any case unwise to park too much money in a savings account. Savings interest rates are low and inflation and taxes are only reducing your assets in a savings account. Some people therefore choose to put their money in a high-yield savings account.With some foreign savings accounts you still receive one or two percent interest. However, it is important to examine the risks carefully: for example, research what happens when the bank collapses. Also pay attention to the currency used for the bank account: if you use the account in another currency, you also run a currency risk.Storing money abroad produces a slightly higher return, but the risks are also much higher. If you are planning to take higher risks anyway, it is better to go for an option with which you can achieve a higher return.

high return investing

Currency trading

You can also achieve a high return by trading currencies or Forex. Currencies such as the euro, dollar and pound sterling fluctuate constantly in value. You can exchange one currency into another via an online broker. If you do this right, you can make a profit because the currency you buy increases in value.Currency trading is normally done via derivatives. As a result, you do not have to exchange your money yourself at the bank. By actively analysing the markets, you can then predict whether a currency will rise in value in the next few hours. Investing in Forex is especially suitable for the active investor who does not mind spending time learning a new skill.Do you want to know how investing in currencies works? In our comprehensive guide, we discuss how you can invest in Forex yourself:

High-risk alternative investments

Nowadays, you can invest in anything and everything: by investing smartly in collectibles such as art, wine and antiques you can achieve a high return. For this type of alternative investment you often need specialized knowledge (or luck).You sometimes read a story in the newspaper about someone who knows how to buy a Picasso for a tenner. An inspiration, but also exceptional. After all, you don’t read in the newspaper about all the people who buy worthless paintings every day. If you want to get rich by a stroke of luck you can also try the local lottery.

How do you determine your own risk tolerance?

Before investing in a high-risk investment product, it is important to first determine your risk tolerance. Only when you won’t lose sleep over your investments, is it worth investing for a high return.Do you have a hard time when losing money? In that case, it is better to opt for a more stable and safe method of investing. Think, for example, of shares in stable companies or ETFs that follow a well-known index. Never start investing before you have a good plan.

How do you maximize your returns?

It is always wise to quantify your risks as much as possible. Determine what (temporary) loss you can live with. In this way you can determine the maximum risk you are willing to take.In the long term, the more aggressive, offensive investment products are often more profitable. However, you do need sufficient time, as you can also make a much higher loss in the short term. Therefore, determine what percentage of your investments you can put into risky products; in this way, you optimize the maximum achievable return.

What are the best investment types?

There are many forms of investment: in the end, the choice of which investment type to use is especially important. In this article, we will review and discuss the most popular methods of investment so you can make the right choice.

What kind of investment types exist

There are a huge amount of investment forms. In this article, we discuss the most common and popular methods of investing: stocks, bonds, mutual funds, CFDs, Forex, commodities, options, real estate, savings account, futures and cryptocurrencies. You can choose to execute your investments yourself, through an investment advisor or to have them executed by an asset manager.

Stocks: popular for a reason

Stocks have always been a popular investment. When you buy a share, you become an economic co-owner of the company. As a shareholder, you are entitled to a share of the profit in the form of dividends, and additionally you can achieve price gains by selling the share at a later time at a higher price.Nowadays, you can buy shares online through an online broker. When you physically buy shares, you choose long-term price gains and build a portfolio. It is advisable to investigate the companies in which you invest. This way, you avoid losing a lot of money by investing in underperforming companies.Do you want to invest in stocks yourself This type of investment is best used with a cheap broker. I like to buy shares with eToro: at eToro you do not pay set commissions when you buy shares. Use the button below to open an account directly with this broker:

Bonds: loan companies & governments

Bonds are issued by governments & companies, so they can borrow a large amount of money. Bonds are less risky than equities, but usually have lower returns. A bond has a certain term in which a certain interest rate is paid periodically; at the end of the term, the loan amount will be paid back.Bonds are also freely tradeable, where the bond price often linked to current market interest rates. When the market rate is lower than that of a bond, the price of the bond will rise and when the market rate is higher than that of a bond, the price of the bond will fall.Do you want to know how investing in bonds works in practice Check out our ‘investing in bonds’ course and discover the possibilities:investing types

What was the best investment over a 100-year period

Investment funds: diversified investing

Mutual funds are extremely popular. There are many types of investment funds today: passive funds, active funds, equity funds, funds aimed at a particular sector or geographical region… You name it and it most likely exists! By choosing a good investment fund you can achieve a higher return than through saving.However, with an investment fund, you pay management fees and often transaction fees as well. Investments in investment funds are therefore long-term and extensively used for large savings objectives. Compare the different mutual funds well before you decide: the performance between the different mutual funds varies greatly.For most investors, the index fund is the best form of investment. An index fund passively follows a selection of stocks that are included in, for example, an index. At DEGIRO you can buy and sell many well-known funds for free. Do you want to invest in index funds Then use the button below to open an account with DEGIRO:

Unique form of investment: CFDs

Another unique form of investment is CFDs. CFD stands for contract for difference. With a CFD, you invest in the price development of, for example, a share. However, using a CFD you do not buy the stock yourself. This allows you to benefit from short-term price fluctuations: both down and up. Moreover, by using leverage, you can greatly increase both your profits and losses.A good broker to actively speculate on the price development of CFDs is Plus500. Do you want to try it here for free with a demo Then use the button below to open a free demo at Plus500 immediately:

Forex: the most liquid market

Forex is an increasingly popular form of investing. Forex is the largest and most liquid market on earth: after all, money is what we use to trade all other securities. With Forex, you sell a currency and use it to buy another currency. When the exchange rate of the currency pair changes, you earn or lose money.With Forex, it is possible to make money both with falling and rising prices. Because the market is so liquid, price movements are quite stable and you can respond to this by placing orders at opportune times, for example, at technical levels. Forex trading is particularly attractive in the short to medium term.Do you want to know more about investing in Forex In our special on investing in Forex, you will learn everything you need to know to get started in the foreign exchange market:

Raw materials: demand is key

Nowadays, you can trade in all kinds of raw materials: in addition to, for example, the well-known gold and silver, it is possible to trade grain and heating oil. With some brokers, it is even possible to trade in live pigs!Trading in raw materials is usually done through derivatives: with these types of contracts you agree to a delivery at a certain price. When the price of the raw material then moves in your direction, you earn money.This form of investment is especially suitable for the investor who likes to analyse the markets well. The prices of raw materials can fluctuate considerably, and it is important to carefully examine the interests of various parties. Do you want to know more about investing in commodities Then read our article on investing in commodities:investment methods

Investment method for brave investors: options

If you have a little more knowledge of the stock market, you can also choose to invest in options. With options, you can set up extensive constructions where you only profit at certain share prices. We do distinguish between call and put options. With a call option, you purchase the right to buy a share at a certain price and with a put option, you purchase the right to sell a share before a certain time.Options always have a limited duration. If you cannot use the option before the term ends, it becomes worthless. It is therefore advisable to research well before you start investing in options. You can lose your entire deposit on options if you make the wrong decision.Do you want to learn how to make the best use of this form of investment Read our special on investing in options and learn everything you need to know:

Real estate: investing in bricks

Another popular form of investment is investing in real estate. The most obvious example of this is buying a small flat and renting it out to a nice couple. This does not stop the possibilities: you can also invest in student rooms or even in parking garages.Investing in real estate is very capital intensive. You must have some start-up capital for this form of investment. You also need to examine the location of the real estate carefully: not every location has an equally strong future perspective. Since the amounts associated with real estate investments are high, it is certainly advisable to read some books on the subject first.Also, on trading.info you can find information about investing in real estate. In our article on investing in real estate, we will teach you what to look out for:

Savings account as a form of investment

When we talk about forms of investment, you probably do not immediately think of a savings account. Many people do not see saving as a form of investing. However, saving is also a form of investing: you put your money in a savings account, and you receive a return on it. Unfortunately, this return is exceptionally low, so that saving large amounts is no longer worthwhile.If you want to invest in the future, it is still wise to put some of your money in a savings account. That way you always have some money for unexpected expenses. Feel free to compare the different savings accounts to find ones that yield some interest.

Futures for large investors

A somewhat risky form of investment are futures. With futures, you can invest in an index such as the Dow Jones or in various commodities. You can also invest in currencies by using a future.You can choose both a long future and a short future. With a long future, you earn money when the value of the underlying security rises and with a short future, you earn money when the value of the underlying security falls. With futures, you can respond perfectly to the latest market developments. Problematic about futures investments is the fact that profits and losses can quickly add up. For this form of investment, you need a decent amount of capital.

Cryptocurrencies

A very hip form of investment is investing in cryptocurrencies. The price of cryptocurrencies is very volatile: for example, the price per Bitcoin rose to $19,500 in 2018, before dropping to a few thousand dollars. In 2020, the price is already at a similar price as in 2018. Of course, as an active investor, you can benefit from all these fluctuations.When you start investing in cryptocurrencies, it is important to research how cryptocurrencies works. There are plenty of stories on the internet of people who lost tens of thousands worth of Bitcoins. You still regularly read stories about someone losing access to their wallet. Therefore, research the techniques behind the cryptocurrency carefully so that you do not make these kinds of messy mistakes.Do you want to know how to invest in cryptocurrencies Read our special on investing in cryptocurrencies, and you will know how to get started:

Other forms of investing

  • Patents: you do not earn anything or a huge amount…
  • Green investments: when the environment is important to you.
  • Alternative investments: art, culture & other collectibles

Which are the methods of investment

We have now discussed the various investment products. Of course, you can also decide which way you invest. In this part of the article we describe how you can form an investment strategy.

Personal investing

Investing yourself is smart when you have sufficient knowledge about the risks and possibilities of the different investment types. When you get started, it is important to keep a close eye on the latest developments. It is wise to study how investing works so that you increase your chance of success.Nowadays, every adult can invest his or her money. This can be very advantageous: when you hire an advisor or a fund, you often pay extra for it. You do need an account with a broker to be able to invest yourself. Are you curious about investing yourself? Then take a look at our list of the best brokers:

Investment advisor

You can also choose to invest through an investment advisor. An investment advisor gives tips on how to improve an investment portfolio. If you have sufficient capital, you can choose to receive one-on-one advice from a private banker. For many smaller investors it may be more interesting to collect tips via the internet.investment forms

Asset management

The final form of investment you can apply is asset management. This is ideal for the investor who wants to get the most out of his or her wealth but does not want to spend a lot of time and effort on it. An asset manager takes the investments completely out of your hands. Consequently, you no longer have to buy & sell shares yourself. Make sure you choose an asset manager who suits you well: this means choosing an asset manager who takes risks suiting your investment profile.

Determine your risk profile

Before you determine which investment type or method best suits you, it is important to determine your risk profile. The risk profile indicates the extent to which you are willing to take risks. You must think of the risk scale as a sliding scale: an investment is not necessarily risky or risk-free. For example, investments in derivatives are very risky while investments in bonds are less risky. But there are also differences in risks within bonds: for example, government bonds are less risky than corporate bonds.Therefore, first make a list of your goals and decide what risks you want to take to achieve these goals. Only by asking yourself the right questions can you determine which form of investment suits you best.

How to choose a good form of investment?

It is important to choose an investment form that suits you well. Of course, it is also possible to combine different forms of investment. For example, you can start trading forex yourself to build an income in the short term and the income you earn from this can be put into physical shares. Ultimately, you are responsible for your investments, and it is important to draw up a good plan to get you started.

Relative Strength Index (RSI) investing explanation

The RSI or Relative Strength Index is a powerful indicator to check whether the current up or downtrend still has room to continue. In this explanation you can read all about the Relative Strength Index so that you can apply it to your investments.

What is the Relative Strength Index or RSI?

The RSI is a technical indicator that measures how often the price of a currency pair or share closes higher compared to the number of times the price closes lower. This value is then compared to several time periods where the most recent data is the most important. These measurements yield a value between 0 and 100.

The calculation of the RSI is as follows: 100 – (100/ (1 + (average increase / average decrease). Consequently, the RSI shows the ratio between average increases and decreases. The average increase is calculated by continuously comparing the closing price with that of the day before.

A figure above 70 indicates that the pair has been overbought, a figure below 30 indicates that the pair has been oversold. Some investors prefer values of 80 and 20 as this provides even more certainty. When an overbought or oversold situation occurs, you should not immediately take a trading position. The RSI is only an indicator and for that reason, it is important to look for other indicators.

How do you set up the RSI?

Inside Plus500

A good broker for trading using the RSI is Plus500. Click here to read more about Plus500 and to create a free demo account.

Within Plus500 it is straightforward to set up the RSI. To achieve this, go to the indicators setup via the toolbar and select the Relative Strength Index. By default, the index is set to 14, but it is wiser to use 6 as a value.

plus500 moving average

Inside MetaTrader

Likewise, within MetaTrader it is easy to set up the RSI. To accomplish this, use the toolbar to go to insert, indicators, oscillators, and Relative Strength Index. Use 6 as the period and thicken the line so that it is easier to read.

What is the basis of the RSI?

Many investors use the RSI to determine if there is still a good entry point. For example, many traders see an overbought signal as an indication that you should no longer buy. After all, there are already many investors who have bought the relevant share or currency pair.

However, this is a little too short-sighted. An overbought status can also be a sign of strength. Trends can grow and strengthen. Consequently, in a case like this, you might miss a great opportunity. Hence, it is wiser to look at divergence and convergence within the Relative Strength Index.

How to use the RSI?

You can use the RSI to check if the current trend still has power to grow. In case of convergence this can still happen, with divergence there is some doubt and a reversal may occur.

Convergence

In the case of convergence, the RSI is in line with the trend and the trend is likely to continue

  • Bullish: both price and RSI attain greater highs
  • Bearish: both price and RSI attain lower highs

rsi convergence

RSI convergence in an uptrend: a higher top on the graph and a higher top on the RSI

Divergence

In case of divergence, the RSI is not in line with the trend and a reversal can occur.

  • Bullish: the price attains greater highs, yet the RSI attains lower highs
  • Bearish: the price attains lower lows, but the RSI attains higher lows

RSI divergence

A higher top is formed, but the RSI attains a lower top… this is RSI divergence!

Application of the RSI

The RSI is of value to test your perception of the current market circumstance. Convergence confirms the current trend, while divergence indicates that the trend may reverse. By taking this into account, you can take more successful positions and make more profit with Forex and shares.

The RSI is also essential when taking a position on a trend reversal: only in case of divergence it is wise to take a position on a trend reversal. The RSI is therefore especially useful when you want to open an investment on a trend reversal.

Relative Strength Index and 50

You can also use the RSI to estimate the current trend. When the RSI is above 50 there is an upward trend, and when it falls below 50 there is a downward trend.

If the RSI is above 50, this may be a reason to buy. When the RSI then decreases to below 50, it is time for you to sell again. However, keep in mind that this is only one indicator. Do not decide based solely on the Relative Strength Index!

Adapt the RSI to the present situation

It is important to remember that 70 and 30 are defaults that are not always usable. For example, if a stock is in a clear downward trend, it may be wiser to lower the overbought level. At that time, you can draw a horizontal level within the RSI at 50.

Investing for dummies

Many people will be familiar with the book investing for dummies; you can see this article as the ultimate short guide for dummies. We try to teach you in as few words as possible about the interesting investment opportunities available to beginners.

Investing for dummies: what is investing?

More and more people discover that investing can be very interesting. Investing is buying & selling securities with the aim of making a profit. Many investors start trading shares. However, there are many other investment products with which you can achieve a good return.

How can you invest as a dummy?

Dummies often do not immediately know where to start investing. To help you on your way, we have listed the best options for you.

Active CFD trading

If you like to be active in investing, you can choose to trade actively using CFDs. You can then respond directly to price rises and falls of, for example, a share. This short-term way of speculating is especially suitable for the active trader who likes to be active on the stock exchange.You can try active trading for free with a demo. This is recommended as active CFD trading can be complicated. Would you like to open a demo straight away to practice trading? Press the button below to compare different demo accounts:

Buying shares for the long term

Many people choose at some point to invest in shares for the long term. This can work out well: the average return on stocks is between 6 and 8%, which is a lot higher than the current savings rate. You can already invest in shares with only a few hundred pounds. However, with a smaller amount, it is more difficult to spread out your risks.A good broker to buy & sell shares is eToro. At eToro, you can trade shares entirely without commissions. Use the button below to directly open an account with eToro:

Investing in an index fund

For many dummies, it might be wise to put their money into an index fund or ETF. An index fund follows an index passively: you then invest, for example, in a basket of shares listed on the FTSE. This is a passive way of investing that requires little or no knowledge. In addition, the management costs of a comparable fund are low, allowing you to achieve a higher return in the long term.A good party where you can buy funds without any transaction fees is DEGIRO. By the way, this only applies for the funds that are included in the core selection: so take a good look at this before you get started. Use the button to directly open an account with DEGIRO;

What is the purpose of investing?

Some dummies may wonder what the ultimate purpose of investing is. In short, the goal is simple: to make a profit! However, the interpretation of this is very different from investor to investor. When you are young, for example, you can take some more risks. You then have a long investing horizon which gives you enough time for future recovery. Other investors want to run as low a risk as possible: if this is the case, it is better to invest in less risky investment products.

What is a stock exchange?

Investments are usually made on the stock exchange: the prices of shares are registered on the stock exchange. During trading hours, investors can then buy & sell shares on the stock exchange. When the demand for a share rises, the share price may rise. You no longer trade physically on the stock exchange: all investments are now sent digitally to the stock exchange via an online broker.

investing dummies

Investing for dummies & risk diversification

Many dummies forget the importance of risk-spreading when they start investing. Instead of really investing, they are mainly gambling. This is of course unwise: as a gambler, it is better to visit the casino.By ensuring sufficient diversification, you reduce the chance that your investment portfolio will suddenly sharply go down in value. But how can you, as a dummy, apply more risk diversification? This can be done in various ways:
  • Investment product: you can spread your investments over different investment products. For example, invest a portion in shares & a portion in bonds.
  • Sector: you can spread your investments across different sectors: you can buy shares of construction companies and retail companies.
  • Region: it is also wise to spread your investments over different regions. That way you reduce the impact of regional, socio-economic problems.
  • Time: you can also spread your risks over time: step in staggered! By getting in the market on multiple moments you avoid investing a large part of your assets at the peak of the market.

Dummies often forget the costs

Many dummies immediately start investing enthusiastically, but then forget to keep an eye on the costs. However, the costs are critical: if you invest at too high a cost, this can severely limit your returns in the long term. This can quickly cost you thousands when you have invested a significant amount of capital.The investment costs you pay differ greatly per investment product. In any case, you regularly have to deal with these costs:
  • Purchasing costs: the broker charges costs when you buy an investment product. In some cases you pay a fixed commission.
  • Ongoing costs: on some investment products you pay management costs. This is, for example, the case with an investment fund.
  • Service costs: at some old-fashioned brokers you pay service costs for using the account. Fortunately, you can avoid these costs.
  • Currency costs: when you invest abroad, you also have to pay costs for exchanging currencies.

Investing roadmap for dummies

You now know better what investment means and what you need to pay attention to. In the meantime, you are probably eager to start investing. Before you can really get started, it is important to go through this step-by-step plan. That way, you can determine whether you are really ready for it.

Step 1: are you ready?

Investing is not always suitable for everyone. It is important to ask yourself a few questions first:
  • Do you have an amount of money in your account that you can spare in the near future?
  • Are you prepared to take risks to achieve a higher return?
  • Do you understand what investing means?
Only when you can answer YES to these questions will you be ready to start investing. If this is not the case, it is better to leave the money in a savings account for now.

Step 2: determine your risk profile

A good next step is to determine your risk profile. Not every investor feels equally comfortable taking large risks. Therefore, ask yourself the following questions:
  • Do you mind large fluctuations in your investment results?
  • Do you need the money back any time soon?
  • Do you think a stable result is more important than a high profit?
When you answer YES to these questions, it is better to use a defensive strategy. You then invest in less risky bonds & shares. If you answer NO to these questions, you can take more risks. With an offensive investment profile, you often achieve a higher return in the long term. However, with a similar profile, your risks are also much higher.

Step 3: determine how you are going to invest

Many dummies forget to draw up a clear plan. Investing money arbitrarily without a plan, however, is not a good idea. Therefore, first think about how much money you want to invest and decide how much time you have to invest. Based on this information, you can decide what kind of investment products suit you best. An index fund requires little time and a small amount of capital, while active investment itself often requires more time and a larger amount of capital. By drawing up a clear plan, you can determine which investment method suits you best.

Step 4: determine where you are going to invest

I am a big fan of cycling, but fortunately, you don’t have to cycle to the stock exchange to buy shares. These days, buying and selling investment products such as shares is done entirely through the internet. When selecting a good provider, it is advisable to pay attention to the following aspects:
  • Is the broker a reliable party?
  • Is the broker’s software user-friendly?
  • Can you invest at low transaction costs?
  • Can you try out the possibilities with a demo?
  • What is the minimum deposit to invest?
On the basis of the answers to these questions, you can determine whether a broker suits you. Would you like to know which broker you can best invest with? Then take a look at our comparison of best brokers and try out the different options:

Step 5: Stay sharp

It is then important to stay focused: draw up a strategy and follow the latest market developments. Try to make your decisions as much as possible on the basis of rational arguments. Many dummies make the mistake of letting their emotions guide them too much. This is a shame: in practice greed & fear are bad counsellors.

15 important investment rules for dummies

Rule 1: Saving is a requirement for every investor. Never invest with money you can’t afford to lose: that way you avoid getting into trouble because your car needs a repair.Rule 2: Assume a realistic rate of return that does not exceed 8-10 % on an annual basis. Only with very hard work you can achieve a higher return.Rule 3: focus on the long term: even if you invest in the short term, it is important to have a long-term plan.Rule 4: Risk diversification is an important part of any investment strategy. By spreading your risks, you ensure a more stable and predictable return.Rule 5: Look at the overall picture of your financial situation and determine on that basis what your investment strategy should look like.Rule 6: remember that supply & demand determine the prices on the stock exchange. A sudden rise or fall does not necessarily mean that a company has lost its intrinsic value.Rule 7: Take your investment horizon into account: when you are young you can take greater risks as you have more time.Rule 8: do enough research: you work hard for your money and buying and selling bad stocks costs you money.investing for dummiesRule 9: Research taxes: you often pay taxes on your investments as well.Rule 10: limit the costs of your investments as much as possible. All the costs you save will give you more room to achieve a good return.Rule 11: remember that beating the market is very difficult: even professional investors rarely succeed. Therefore, consider whether it is realistic that you will do so.Rule 12: Don’t get out in bad times: that’s when you can make a lot of money on the stock market!Rule 13: Beware of hiring investment advisors. By teaching yourself the basics you will save a lot of money.Rule 14: Accept that it is almost impossible to predict the future. Proper management of your money & risks are therefore crucial.Rule 15: In the end, your personal health is most important: therefore, make sure you can sleep well despite your investments.

Learning to invest is important

If you are still a dummy when it comes to investment, it is important to first learn how investment works. For this purpose, it is wise to first practise with free investment software. Don’t forget that investing is ultimately a serious business; a wrong decision can have serious consequences. You can start right away: Many people have their doubts about a demo programme; however, this is not necessary. After all, the practice account is completely realistic and can also be used to trade with real money. The way the demo account works is therefore entirely in line with what it is like to invest with real money.

Investing with real money

When you have learned enough you can easily switch to the real money mode within the software. In real money mode you can deposit money yourself with which it is possible to trade shares and commodities CFDs. This allows you to take advantage of the smallest price fluctuations by using leverage.Plus500 dummies

Useful information for dummies

Dummies often do not yet know how to invest. It is therefore wise to learn a lot about investing first. This can of course be done by reading a book like ‘investing for dummies‘. However, this book is quite outdated and contains little information about the new possibilities that online investing can offer you.It may therefore be wiser to first take a course on investing. On trading.info we have several useful resources that you can consult as a dummy; that way you can get started with a solid amount of knowledge!The biggest recommendation when you want to get started quickly is our Plus500 tutorial. Use the button below to follow the tutorial directly and learn the basics:

What can dummies invest in?

As a new investor, you have many investment options. In this part of the article we will discuss what you can invest in as a dummy.

Shares

As a dummy, it is totally possible to buy shares. Some dummies may not know yet what stocks are; shares actually give you the co-ownership of a company. Stocks can change in value, so you can make a price gain. You can also get a dividend on your share; these are a kind of profit distributions.Do you want to know the best way to buy stocks? In our special on buying & selling shares you will learn everything you need to know:

Bonds

If you prefer things to be calmer, you as a dummy should opt for bonds. Bonds are loans issued by a company or the government. Bonds have a limited risk, as you get your deposit back at the end of the term. During the term of a bond, the price of the bond can fluctuate. Would you like to know more about investing in options? Then read our article on the subject:

Derivatives

Derivatives are contracts on, for example, shares or bonds. This way of investing is especially attractive when you are going to invest with a small amount of money. An example of a derivative is the CFD or contract for difference; you can trade these derivatives with an online broker.Do you want to know more about trading in derivatives? In our derivatives special you will learn everything you need to know about investing in derivatives:

Forex

Forex is another interesting investing option for dummies. Forex is the activity of trading in currency pairs. The price of currencies often moves up and down less quickly because it is the largest market in the world. Also, exchange rates are often easy to understand and you only have to look at global trends. This makes exchange rates more predictable than, for example, stock prices.Do you want to know how investing in Forex works? Then read our special about investing in Forex right away:

Raw materials

Raw materials are also popular as an investment option. Nowadays, most people trade in raw materials via derivatives; yet it is also possible to make physical investments in gold and silver. However, in practice it is not possible to physically buy commodities such as sugar and coffee, which are usually traded in large quantities.Do you want to know how investing in commodities works? Then read our special about investing in commodities:

Options

Finally, there are options, but options are very complex for most dummies. Among other things, you can use options for hedging where you can hedge the risks of an investment position when you expect a sudden sharp fall or rise. Do you want to know how options trading works? Then read our extensive manual:

A few final remarks for dummies

  • Start small: do not invest large sums of money!
  • Keep learning: try to discover new techniques all the time.
  • Limit your loss: use a stop loss to limit your loss.
  • Don’t follow dummies: don’t follow other dummies, walk your path.

What is investing?

What is investing? Investing is buying something with the expectation that it will be worth more later on. This could be, for example, a share in a company. However, there are many more possibilities and forms of investing than you would initially think.

What is the purpose of investing?

The aim of investing is, of course, to make money. In the traditional form of investing, you would make money when the price of a stock increases. When you hold on to a stock for a longer period of time, you can achieve a positive result.

Nowadays, it is also possible to make money when prices fall. This possibility is, of course, very attractive when the economy is not doing so well. When you estimate the price of a stock will fall, you can open a short position.What is investing

What can you invest in?

When you think about the question of what investing is, you also come to the question of what you can invest in. A better question might be what you cannot invest in. After all, it is possible to invest in almost anything via the internet. Think of pigs, but also, for example, art. Nevertheless, there are a few important categories:

  • Shares: you then trade in the stock market value of a company.
  • Bonds: you trade loans issued by companies or governments.
  • Raw materials: you can invest in gold and silver among others.
  • Forex: here you trade in currencies such as the pound against the dollar.
  • Options: you buy the option to buy or sell a stock against a set price.
  • Derivatives: more complicated constructions with which you can also open short positions.
  • Cryptocurrencies: you can trade in digital currencies like the Bitcoin.

How can you invest well?

Investing is more than just gambling. Yet you can never predict the stock market with certainty. By practising, however, you can become handy at it. Especially in the short term certain patterns can be analysed and predicted, which makes it possible to earn a living as a professional trader. In the long term, the core data of the company becomes important. It is then important to do a more extensive analysis of the company.

Please note that the price of a security can never be determined with certainty: therefore, only invest with money that you do not immediately need.

5 reasons to invest

  • Investing can give you a better result than saving.
  • With investing, you can also bet on a falling price.
  • You can decide for yourself how much you want to invest.
  • You can try investing for free with a demo.
  • Investing is exciting and educational!

Why do people invest?

We now know what investment is and what you can invest in. But why do people decide to invest? It is well known that investing involves risks, and people like to see money grow, but preferably at a limited risk. Yet many people decide to invest in the end. Are they not afraid of losing their money?

Probably, however, the alternative is not very attractive. Under the influence of inflation and low savings interest rates, putting your money on the bank yields a negative return. This while investments show good returns in the longer term. It is therefore not surprising that more and more people are trying to invest. Some people do this themselves and others call in an investment fund or adviser.

Investing yourself?

Now that you know what investing means and why people do it, you can determine whether it is also for you. Do you dare to trade the stock markets? Your risk might be higher, but your potential return is a lot higher as well…

If you want to invest yourself, you need an account with an online broker. A broker is a party that makes it possible to trade in, for example, shares. We have made a clear overview of the best brokers. Use the button below to immediately compare the best brokers with each other:

Specific questions about investing

You can invest in all kinds of securities: in this part of the article we go into the different investment possibilities in more detail.

What is investing in shares?

When you invest in stocks, you actually buy a part of a company. Companies issue stocks to attract money without having to borrow it. They then sell part of the ownership of the company: when you buy stocks, you become the owner of a tiny part of the company.

There are two ways in which you can make money when you invest in shares:
  • Price gain: you make a price gain when the share price rises.
  • Dividend: shares sometimes distribute part of the profits in the form of dividends.
On average, you can achieve an annual return of seven to eight percent on investments in stocks. However, this is not a guarantee: if you select a strong share, you can sometimes achieve tens of per cent return, whereas with a weak share, you can lose a lot of money.Do you want to know how investing in stocks works in more detail? Then read our guide to buying and selling shares right away:investment explanation

What is investing in bonds?

Another form of investment is investment in bonds. When you invest in bonds, you invest in loans issued by companies or governments. There are two ways to make money with bonds:

  • Price gain: the price of a bond can increase.
  • Interest: you receive interest on your bond on a yearly basis.
Investing in bonds pays off particularly well when interest rates are high. The annual return on your bond will then be high. Use the button below for more information about investing in bonds:

What is investing in investment funds?

A popular way of investing is to invest in an investment fund. A mutual fund invests your money on your behalf. So, you do not have to decide for yourself how your money is invested. There are two types of investment funds:

  • Index funds: these funds follow an index and are also called passive.
  • Active investment funds: these funds actively try to beat the market.
Active investment funds rarely succeed in beating the market. They still charge higher transaction costs, which often makes it unattractive to invest in these funds. For most people, it is therefore wiser to invest in an index fund as well. You can read more about index funds in our article on the subject:

What is investing in CFDs?

Another, modern method of investing is CFD trading. When you invest in CFDs, you are investing on changes in the price of the underlying asset. With CFD’s you don’t buy a share: instead, you only buy a contract on the rise or fall of a stock. CFDs allow you to speculate on small price changes and to respond to both rising and falling markets. Do you want to know more about investing in CFDs? Read our guide on the subject:

What is investing in real estate?

When you have a little more capital available, it can also be attractive to invest in real estate. Real estate comes in many shapes and sizes: you can invest in houses but also in office buildings. With real estate, you can achieve a positive return in two ways:

  • Price gain: the price of the property may increase in value.
  • Rent: you can rent out your property for a monthly income.
Investments in real estate are considered safer than investments in shares. Real estate, especially in a good location, does not simply lose its value. Do you want to know how to invest in real estate yourself? Then read our special on the subject:

What is investing in options?

Investing in options can be interesting for the smart, active investor. Options give you the right to buy or sell a share at a certain price. If the price then moves in the right direction, you can achieve a good return.

It is also possible to write options: you will receive a premium for this. Writing options can be very risky. Would you like to know more about investing in options? Then read our article on this subject:

How can you make money on the stock exchange?

Anyone can make money with the stock market! This is usually done by making a price gain. Through the interplay of supply and demand you see that stock prices change regularly. Do you want to know how you can make money on the stock market yourself? Then read our article on this subject right away:

what is investing exactly

What is the difference between investing and speculating?

Speculation is really focused on the short term: you then hold a position for hours or days with the aim of achieving a quick price gain. When investing, the emphasis is often on positions that are held for a longer period of time.

What are important basic rules for investing?

When investing, it is important to remember that risk and return are inextricably linked. Taking higher risks is therefore rewarded: but you have to make sure that you don’t lose your entire capital by making a stupid mistake. It is also important to remember that the chance of success with investment increases when your investment horizon is longer. You will then have more time to wait for a recovery when the prices are against you for a while.

What is an investment?

With an investment, you put money into a security like a stock or a bond. The purpose of an investment is to gain a financial advantage in the future. You actually exchange your certain capital for an uncertain income in the future.

We often do not call savers investors: yet both groups actually fall under the same heading. After all, you convert money into a possible future gain, and you run a risk in doing so. You also run a small, but negligible risk on your savings account. The bank may go bankrupt, and you also run an inflation risk: your money will then be worth less because the prices of products in a country rise.

What types of investors exist?

There are different types of investor on the stock exchanges. The private investor is an investor who invests for himself. Institutional investors are large bodies that manage large quantities of assets: examples include pension funds and insurance companies. Institutional investors have a major influence on stock market prices. Companies are also active on the market and use derivatives to hedge their risks.

What type of investors are there?

Economic investors: the economic investor or trader mainly looks at short-term macro-economic expectations. When the economy is doing well, they buy additional shares.

Automatic investors: the automatic investors automatically buy baskets of stocks and bonds using an index fund.Technical investors: technical investors use technical analysis to predict future prices.Growth investors: growth investors invest in equities on the basis of expected growth in the future. Promising, but still loss-making companies are interesting to the growth investor.Value investors: value investors invest in companies by looking at how the company is performing now. A well-known value investor is Warren Buffett.Alternative investment: there are also many alternative forms of investment. You can invest in almost anything, from wine to art and from wood to ocean-going vessels.

What are the advantages of investing?

High expected return: the average return on stocks is between 7 and 8 percent. That is much higher than the return on your savings!

Return over return: your capital can grow exponentially because you also receive a new return over your return.Dividend: you often receive a dividend on stocks. By investing in stocks you can build up a nice income.Tradable: when you trade on the stock exchange, you can sell the investments you buy.

What are the disadvantages of investing?

Risks: investing involves the necessary risks. If you are unlucky, a company can even go bankrupt: you then lose your entire investment.Knowledge & time: good investment takes knowledge & time. Unfortunately, becoming rich without doing anything is not possible.

Can you lose all your money by investing?

If you take excessive risks, you can lose all your money investing. This can happen when you put all your money into one company or when you use risky derivatives. If your investments are sufficiently spread over different categories, the chance of losing the full amount on your investment account is fortunately minimal.

What is investing now?

To the question ‘what is investing’ we can give a simple answer: buying and/or selling securities to make money. Investing is an interesting way to get a higher return on your savings. Nowadays, it is possible for everyone to invest. However, it is important to draw up a good plan before you jump into the deep end.

Speculation: how to speculate on the stock market?

By speculating, you can achieve high profits in the stock market in the short term. But how can you speculate, and what should you look for when you want to achieve good results? In this article you can read everything you need to know about speculation!

How to speculate on the stock market?

Do you want to start speculating yourself? Then you can use various financial instruments.

Speculating with shares

It is also possible to speculate in shares directly. If you do, you buy and sell shares in the short term. You often need a little more capital for this: You cannot apply a lever, so you must invest the full amount needed for your investment. It is also important to pay attention to the transaction costs: If you do not, you lose a large part of your return. You pay your transaction fees with each transaction, over and over again.If you want to get serious about speculating in stocks, it is advisable to open an account with a broker that does not charge fixed commissions. That way you can constantly buy and sell shares without your return suffering significantly. At eToro you can buy and sell shares without paying commissions, which makes it a very suitable option. Use the button below to open an account directly with eToro:

Speculating with CFDs

A popular way to speculate is speculation through CFDs. With CFDs, you can speculate on the price increases and the price falls of stocks, commodities, index funds, cryptocurrencies, and currency pairs. You can speculate on a falling and rising price: This allows you to react to all types of market conditions. You can also apply a leverage: This increases both your potential profit and your potential loss.Do you want to get started with speculation yourself? Then you can open a free demo at a CFD broker. A good party to try is Plus500. At Plus500 you can try the possibilities for free with an unlimited demo. Use the button below to open an account with Plus500:

Speculate with options

Another popular method for speculation are options. When you buy an option, you obtain the right to buy or sell a share at a certain price. This right expires after a certain period: Some options have a one-day duration while others are valid for weeks or even months.Options are good for short-term speculation, as they always have an expiration date. Because there is a lever built into the instrument you can also profit from small price increases and price falls. Do you want to know exactly how investing in options works? Read our article on investing in options to learn more:

Speculating with real estate

Another popular form of speculation is speculation in real estate. In the period between 2000 and 2007 many people were speculating on the real estate market. This form of speculation ultimately resulted in the collapse of the economic system: It is therefore important to be careful with speculation in real estate! Do you want to know how to achieve the best results with real estate investments? Read our how-to-guide for investing in real estate:

Speculating with futures

A final option is to use futures for speculation. This possibility is not suitable for the novice investor: For investment in futures you need a substantial amount of capital. Moreover, the smallest price fluctuations can result in a large loss. Be careful with investing in futures!

What is speculating?

Speculating is a form of investing where you try to take advantage of small price fluctuations in the short term. Speculation can take place on different timescales: Some people speculate on a period of weeks while other investors’ positions close within minutes. If you handle speculation well, you can make a lot of money from it. However, the risks are also high, so you can also suffer great losses.

How to successfully speculate?

Unfortunately, there is no ‘perfect method’ that guarantees success with speculation. Nevertheless, I would like to give you some tips that will certainly increase your chances of success.

What should you beware of?

When you invest in shares, you often pay particular attention to a company’s figures. Is the financial health of the company good and are there sufficient opportunities for growth? This method of analysis works well when you are building assets long term. Short term, however, you must analyse the stocks differently.Short term, emotion plays an important role. Most investors are not professionals, and they react emotionally to global developments. For example, during the corona pandemic you could see that share prices fell tens of percents in a period of several weeks. Speculators see this as an opportunity: They buy up stocks at that time, because they expect prices to recover in the future.speculate newsWhen you want to become a good speculator, it is advisable to study human nature. Once you understand that people are afraid of loss, you can exploit this in a smart way. As a professional trader, you can then choose to  apply technical analysis: This way you can find the perfect entry points.

Smartly managing your risks

When you start speculating, it is most important to manage your risks well. Once you lose all the money in your investment account, you lose. Therefore, it is advisable to manage your speculation account as a business. Determine the maximum amount you can lose per trade and make use of a stop loss at each position. That way, you reduce the chance of losing the entire investment because you have made some bad investments.

What are the differences between speculating and investing?

There are clear differences between speculation and investing. In this part of the article we describe the main differences.

Purpose

The purpose of speculators is often different from the purpose of investors. Speculators usually try to make as much money as possible in a short amount of time. Not all speculators take this seriously: there are plenty of people who speculate for fun in the price development in for example oil.Investors are often focused increasing their future capital. They can do this by regularly investing some money to build up a nice pension. Investing is a lot less exciting, which makes people less likely to see investing as a hobby.

Time horizon

When you speculate, you try to achieve a positive return in a short time. You open positions to close them quickly. Investments have a longer time horizon: some investors hold shares for many years to even decades.

Risk

The risks of speculating are much higher: because speculators try to achieve a high return, they also must accept higher risks. Indeed, there is a clear link between risk and return where the likelihood of both a high and a low return increases when you take a higher risk.Investors do not always take high risks; for example, some people invest a lot of their money in bonds. In relation to speculation, the risks on investments are therefore considerably lower.

A speculation example

Are you curious how speculation can work in practice? We would like to explain this with an example! During the corona pandemic, the fight for a working vaccine erupted. As a savvy speculator, you have decided to buy shares of companies active in developing a vaccine.If one of these companies does indeed come up with a working vaccine, you can make a decent price gain from it. For example, Pfizer announced positive results with their vaccine in November 2020. The share price then immediately rose by more than ten percent: As an active speculator, you then quickly sell your shares to make a nice profit.For speculators who tolerate higher risks, you may even consider applying a lever. With a leverage of one to two you borrow part of your investment from the broker. If the price then rises by ten percent, you achieve a positive return of twenty percent. Of course, this works in both directions: you might as well have lost 20 percent.speculation

Can you make money speculating?

You can certainly make a lot of money speculating. Some people who study the markets constantly and practice a lot even manage to build an income with them. Still, 70 to 80 percent fail to make a profit from speculation: they lose money consistently. It is therefore important not to just dive in but study the matter and practice with a demo first. Do you want to know where to practice speculating with a demo? Have a look at our overview of demo accounts:

The theory behind speculation

Some people doubt whether it is possible to make a profit from speculation. In the year 1900, the mathematics Louis Bachelier published a thesis under the name theory of speculation. According to him, the formation of the share price is entirely arbitrary. This subsequently led to the development of the efficient market hypothesis.This hypothesis states that all available information is already part of the market and that all future developments cannot be predicted. If this were true, you would only be able to make a profit from speculation with a little luck.This is too rational a view of stock market trading: most of the investments are still made by people. People are emotional beings and under the influence of fear and greed people sometimes make strange decisions. Therefore, in reality, the market is not yet fully efficient; consequently you, as a trader, can still benefit from the market.

The moral view on speculation

Speculating receives the necessary social criticism: the activity would be completely meaningless. Garbage men or nurses do something worthwhile while speculators just move money around. In addition, speculation can lead to scarcity and the prices of products can rise considerably as a result.Yet, speculation also contributes to our economic system. For example, during economic crises you often see speculators buying stocks early on: They do this because they expect things to improve in the future. As a result, markets fall less sharply and pension funds lose less money.Speculation also leads to higher trading volume: It increases liquidity in the market, thus improving pricing. Higher volumes also allow lower transaction costs to be charged on financial derivatives. Derivatives are often essential for protecting the business interests of (international) companies. Without speculators and day traders, the costs for these companies would rise considerably.Although the intention behind speculation is not noble, speculation does play an important role in our economic system. If you want to speculate, you certainly do not have to feel guilty.

What are speculative stocks?

Speculative stocks are shares of companies that are often traded at a low price and where you can make a good profit in the long run due to a high degree of volatility. Many of these shares can be found in the technology sector. New trends can also be very volatile: an example of this are the shares of weed companies.

Speculative stocks often outperform the market when prices rise sharply and perform worse than the market when prices decrease. Therefore, it can be particularly interesting to buy speculative shares when the price has fallen sharply. Speculative stocks are only suitable for investors with a high-risk tolerance.

Is speculation the same as gambling?

The stock market is difficult to predict in the short term: People sometimes mistakenly believe that speculation is the same as gambling. However, if you are good at managing risks, you can achieve a positive return: speculating is not the same as gambling, where the outcome is completely arbitrary.

What does speculation mean?

When you look in the dictionary, you see that speculation  means opportunity consideration. An alternative definition of speculation is a transaction with significant financial risk. So speculating is a combination of both; based on probability considerations, you carry out transactions with a significant financial risk.

speculate

Where & how can you speculate best?

Speculating is something you can do best with an online broker through contracts on the underlying asset. This way of investing is best suited for speculation because the fixed transaction costs are lower, so you can also achieve a good result in the short term. Thanks to the presence of a leverage,  you can also benefit from small movements on the stock market with little money.

At first, it may seem as if speculating is quite difficult: By practising you learn  how speculating works, and you can make more and more money from it. Because brokers offer the possibility to try speculating completely without risk with a free practice account,  you can discover under real market situations with a fictitious amount of money how to best make money on the stock market.Do you want to know which brokers you should start speculating with? Take a look at our list of the best brokers:

Sources of information

When speculating as a private investor you can use two main sources of information: Please note, however, that none of these sources are entirely decisive. Therefore, always remember that:
  • You make decisions based on incomplete information.
  • It is impossible to predict the price development with certainty.
  • The same information can be interpreted differently by different people.

The first source: News

The first source of information you can use when making investment decisions is the daily news. There are dozens of information websites where you can find large amounts of information. Think of websites such as CNBC, Marketwatch and Yahoo Finance. On these websites economic news is posted quickly.The trick here is to be quick: The effects of recent news are usually incorporated into the stock price rapidly. Especially in the  premarket, as an investor, it can be attractive to study the news so that you are aware of important data about certain companies.When it comes to news, you should always consider what the effect of the news on the price of a share will be. Will investors be neutral, positive, or negative about the news story? News is particularly useful for stock trading, as results are easy to interpret and the market is relatively small. When trading Forex, it is better to make use of technical levels.
Tip: By opening a short position you can achieve a positive result with falling stock prices.

The second source: Technical levels

When speculating, it may also be wise to keep an eye on the technical levels.  Technical levels are levels where price finds resistance or support. These levels are easy to recognize and there is absolutely no need to take a complicated course to be able to recognize these levels. Look at the graph below.graph analysis exampleRecognizing the important horizontal levels is not difficult. We have identified some key levels on the chart below.horizontals bounce explanation2These levels are crucial decision-making moments. Around these levels a battle arises between buyers and sellers and a reversal of the price is likely. By practising often with charts and price patterns, you can have a good future investment opportunity by just looking at a graph.Do you want to know more about recognizing strong, technical levels? Then read our article on recognizing horizontal levels:

How can you invest with 1000 pounds?

Even with an amount of 1000 pounds you can achieve good results! In this article we look at how you can achieve a good return with £1000 pounds the stock exchange. If you reinvest this amount over and over again, you can build up a nice amount of money in the long term. But what are the best options?

What can you invest in with 1000 pounds?

With £1000 you have various investment possibilities! With these tips, you will ensure that you achieve the best results with your investments and trading activities!

Option 1: buy shares for 1000 pounds

You can also choose to buy a selection of shares with 1000 pounds. This used to be unattractive due to the high transaction costs. Nowadays, however, much more is possible: this is because brokers have greatly reduced their transaction fees. As a result, you can invest even a small amount like 1000 pounds in a nice selection of shares.A good broker for investments of £1000 is eToro. At eToro, you do not pay set commissions, which means that you can take a good position even with a small amount of money. Use the button below to directly open an account with eToro:

Option 2: active trading with £1000

Stock market prices are constantly moving: you can respond to this by actively speculating. It is then important to keep a close eye on the latest developments. If, for example, there is negative news about the sale of a company, there is a good chance that the share’s value will fall. You can then take a short position with which you speculate on decreasing stock prices (besides buying).A good party where you can actively trade CFD shares with 1000 pounds is Plus500. You can try out the possibilities completely free of charge & without risk with a demo. Use the button to directly open an account with Plus500:

Option 3: investing in an index fund

Another attractive option when you own 1000 pounds is to invest in an index fund. With an index fund, you invest once or periodically in a broad selection of shares. As a result, you immediately apply a good degree of risk diversification, which is ideal for the average investor. In addition, the costs are low when you invest in index funds, which is of course ideal when you invest only £1000.I myself always recommend DEGIRO for buying and selling index funds. At DEGIRO you pay no buying and selling costs for a large selection of core funds. Use the button to directly open an account with

Option 4: pay off debts

Sometimes people are so focused on making money that they forget their debts. When you have a debt, you pay monthly interest on it. By paying off the debt, you actually achieve a nice return immediately. Especially when the interest rate on your debt is high, it is better to pay it off immediately. With an interest rate of 5%, you save £50 each year when you use a thousand pounds to pay off your debt.

Option 5: investing in raw materials

It may also be wise to invest part of the GBP 1000 in raw materials. Precious metals such as gold and silver are relatively stable in value and perform well during an economic crisis. It is even possible for some brokers to trade actively in the price of raw materials. Would you like to know more about investing in commodities? Read all about it in our article on the subject:

Option 6: cryptocurrencies

Cryptocurrencies can be very interesting for the speculator who does not mind putting (part of) the 1000 pounds into a very risky but potentially profitable security. Cryptocurrencies regularly drop and rise by tens of percents in value. If you buy the right cryptocurrency at the right time, you can achieve a substantial return.Do you want to know more about investing in cryptocurrencies? Read our article on the subject:

Option 7: Lending £1000

You can also choose to lend out your money. You can lend out 1000 pounds to a friend at a low-interest rate. Another option is to buy a bond: with a bond, you lend money to a company or government. There are also special online platforms where you can lend money to new companies: this form of investment is also called crowdfunding. First examine the creditworthiness of the party to which you lend your money.

Option 8: investing in your pension

Research shows that many people forget to build up assets for retirement. That is a shame! When you start building up your pension at a young age, you end up with a large amount later on. Moreover, you often receive interesting tax breaks when you put money aside for your pension.

Option 9: Investing £1000 in a company

Another good option is to invest GBP 1000 in your own company. In practice, the return on your own business is unlimited. Of course, you do need a good idea: just spending 1000 pounds on any idea is not going to make you rich. Moreover, it is important to remember that entrepreneurship often costs a lot of blood, sweat and tears. This option is therefore not suitable for the investor with a limited amount of time.

Option 10: investing in education

Sometimes an investment in yourself can be the best choice. You can buy some good books on managing your finances. You can also develop a new skill that may help you make more money in the future. In fact, an investment in yourself always pays off. Even when you lose money, at least you have grown as a person!1000 pounds investing

Is it possible to invest GBP 1 000 without risk?

The only way you can practically invest £1.000 ‘without risk’ is by putting it in a savings account. The chance of losing money is practically 0, at least when you look at the absolute number on your account. In practice, however, inflation makes your money worth less and less: the prices of products rise every year while the amount in your savings account remains the same.

It is certainly advisable to keep an amount in your account for difficult times. However, it is a shame not to invest anything: in that way, you can be sure that in the long term, your assets will be worth less and less.

Is it wise to invest 1000 pounds?

It is certainly wise to invest £1000. It is precisely by starting with smaller amounts that you increase the chance of building up a large fortune in the long term. After all, you also receive a return on your return, as a result of which the amount you build up grows exponentially. In the beginning you don’t notice much of this, but in the long term your capital grows faster and faster. So, you can never start early enough.

Investing 1000 pounds per month

When you have sufficient income, it can be smart to invest GBP 1000 per month. When you have enough time, you can do your research and select strong stocks. If you have little financial knowledge, you can choose to periodically deposit a fixed amount into an ETF. In the latter case, you still benefit from stock market developments without a lot of effort.

Why is investing wise?

Saving is no longer profitable; worse still, it only costs you money these days. Savings interest no longer outweighs inflation, which makes your money worth less in the long term! By investing, you can achieve a higher return. If you get it right and get to work actively, you can even achieve excellent results. There are even people who earn a living as a daytrader and eventually stop working.

However, it is important to remember that return is a reward for risk. If you aim for a high return, you also run a higher risk. With some investments, you can even lose your entire investment!

How do you achieve a high return with 1000 pounds?

If you want to achieve a good result with a small amount of GBP 1000, you can make use of derivatives. With derivatives, you can actively trade in, for example, stocks and commodities. But how do you achieve a higher return by using them?

If you want to achieve great results with investing, and you want to put in 1000 pounds, you can use a lever. With modern CFD brokers you can use leverage of up to 1:30, but what does this actually mean? Leverage allows you to take positions with a higher value than the amount you have in your account. With 1000 pounds, you can then invest as much as 30,000 pounds.1000 pounds tradingHowever, it is important to use this leverage responsibly. After all, if you use your full leverage of one to thirty, every pound of increase or decrease will be thirty times as strong. An increase of one pound will result in a gain of 30 pounds while a decrease of one pound will result in a loss of 30 pounds. Therefore, be a little more cautious with the leverage in the beginning.All this can be done via the so-called CFDs. CFD stands for Contract for Difference in which you enter into a contract and benefit from the exchange rate difference. When the price rises, the difference in the price will determine your result.Incidentally, this new way of investing in CFDs has even more advantages:
  • At the many brokers you can try out the possibilities with a free demo.
  • You can bet on both rising and falling prices.
  • You can invest in stocks, commodities and Forex within one account.
  • You do not pay any fixed commissions in this way of investing.
Would you like to try the possibilities for free with a demo? Then find out which parties you can open a free investment demo with:

Example of an investment

The AEX is a popular instrument to trade in and with the most popular CFD brokers this is no problem. The price is at 500 points, and you expect an increase of 30 points. Because you are fairly certain of this increase you decide to use a high leverage and with your deposit of 1000 pounds you buy for 10,000 pounds of CFD contracts which equals to about 20 contracts.When your prediction finally comes true, you will achieve a positive result of 20 times 30 pounds, which is a profit of 600 pounds or 60%. By using a stop loss you can ensure that your losses are not too high, it is certainly advisable to make use of this possibility.Ultimately, this new way of investing is attractive to the active trader. Thanks to the presence of a lever, you can open larger positions: this is a possibility, not an obligation. In addition, you can speculate on both rising and falling prices: this allows you to respond well to the latest developments.Please note that trading in CFDs involve risk. You may lose your entire investment.

Getting started with investing yourself

While investing seems fun, it is wise to start with a free demo account first. With different brokers, you can quickly and easily open a demo account. By practising you will learn to recognize patterns, and you will know what to pay attention to be successful.As soon as you know enough about investing, and you know what to do, you can deposit the thousand pounds into your account. You can then start trading with real money and start achieving good results. By the way, don’t forget that your profits must outweigh your losses: if your strategy is built on this principle, you increase your chances of success!

Long-term investment with 1000 pounds

You can also choose to invest in the long term with an amount of GBP 1000. The disadvantage of investing smaller amounts in shares, for example, is that the transaction costs are often relatively high. You can prevent this by investing your money in an investment fund.A major advantage of investing in investment funds is that you also spread the risks over different securities. This reduces the risk of losing your entire investment in one fell swoop. The most advantageous party to invest in is DEGIRO, click here for more information.

How can you invest in the AEX?

The AEX of Amsterdam Exchange Index is the largest Dutch stock exchange index. The index contains shares of the 25 largest Dutch companies. The AEX is often used as an indicator of the economic situation in the Netherlands. But how is the AEX composed, and how can you invest in the AEX yourself?

Investing in the AEX yourself

It is possible to invest in the AEX yourself. There are various ways in which you can invest in the AEX. These methods are briefly discussed below.

Buy individual shares

It is also possible to buy the individual AEX shares. You can choose to buy the shares within the index. In this way, the results of your investments are almost equal to the results of the AEX. By doing so you retain more flexibility as you can sell any share at any moment.If you want to track the AEX by buying shares, you have to buy and sell shares on a regular basis. It is then important to choose a broker with low transaction fees. At eToro, you do not pay set commissions on the shares listed on the AEX, so that you can achieve good results even with a smaller amount. Use the button below to directly open an account with eToro:

Investing in the AEX with a tracker

You can invest in the AEX by means of an ETF or tracker. An ETF is a fund that tracks the stock market index as closely as possible by taking over the distribution of shares. A good party where you can trade ETFs on the AEX is DEGIRO. With DEGIRO, you invest for free in the selection that is included in the core funds. Use the button to directly open an account with DEGIRO:

How can you actively trade in the AEX?

If you want to trade actively in the AEX, you can use CFDs. CFDs are leveraged products with which you can speculate on prices to both rise and fall. This makes CFDs very suitable to respond to price fluctuations within the AEX.Plus500 is a reliable party to try trading in the AEX. Within Plus500 the AEX is called Netherlands 25, which indicates that it is the fund with the 25 most traded shares. Plus500’s low trading fees make trading the AEX price developments accessible.Would you like to try trading in the CFD AEX yourself? Use the button below to open a free demo on Plus500:

With which ETF can you invest in the AEX?

The best ETF with which you can invest in the AEX is the iShares AEX UCITS. This tracker follows the AEX index as closely as possible. The cost percentage of this index is only 0.3% on an annual basis, and you can invest entirely free of charge in this fund with DEGIRO.

Using options on the AEX

If you don’t mind taking greater risks, you can choose to invest in options on the AEX. Options give you the right (but not the obligation) to buy (call option) or sell (put option) the AEX at a certain price. Would you like to know exactly how investing in options works? Then read our manual on investing in options:

What is the AEX?

The AEX or Amsterdam Exchange Index in full is the best-known and most important Dutch stock exchange index. The index reflects the price development of the 25 shares with the largest market capitalization. The value of the index is calculated by taking the weighted average of the shares.

How is the AEX composed?

The AEX contains the 25 Dutch companies with the highest market capitalization. However, not every company has the same weight: the weight of a company is determined by the market capitalization of the individual shares. The market capitalization consists of the number of shares multiplied by the value of an individual share. One share may not have a weight greater than 15% and the index is revalued each year.

Within the AEX, certain companies are quite dominant. Examples include Royal Dutch Shell, Unilever and ASML, which together account for more than 40% of the weight of the index. When investing in the AEX, it is important to keep a close eye on the shares with a strong weight.

Where can you invest in the AEX?

Investing in the AEX is open to everyone. Most brokers simply trade the AEX as a contract. You can then speculate on both a falling and a rising AEX price. When the price rises, you can buy the fund. If you think that the price of the AEX is falling, you can choose to open a short position.

Would you like to know at which brokers you can invest most in the AEX? Then take a look at our overview of the best brokers:Investing in the AEX

Is investing in the AEX sensible?

Investing in a yardstick such as the AEX has several advantages and disadvantages. A major advantage of trading in the AEX is the fact that you automatically spread (limit) your risks. This is because you do not invest in one share, but in several shares. Nevertheless, the risk spread is limited to one economic region, namely the Netherlands. It is therefore advisable to invest in other indices in addition to the AEX, for example by using an ETF.

A major disadvantage of trading in the AEX is the fact that the return to be achieved is often lower. Because the price of the AEX is made up of the best and worst performing shares, it is never possible to achieve a better result than the best share in the index. As a result, you cannot beat the market by investing in an ETF on the AEX. Although beating the market is difficult, many investors like to try.As an active investor, it may therefore be more interesting to select shares yourself. In this way, you can try to beat the stock market index and achieve a higher return. When you do this, it is important to conduct extensive research into the companies behind the share. You can do this by performing fundamental and technical analysis.

What is the current price of the AEX?

Below you can find a graph with the current stock price of the AEX. The price changes every moment of the day. With Plus500 the CFD AEX is tradable between 8am and 9pm. With the buttons, you open an investment position on the AEX:

How is the AEX calculated?

Before investing in the AEX, you must understand exactly how the index is calculated. Within the AEX, the 25 shares are listed with the highest trading volume: this volume is calculated by multiplying the average price of the share by the traded volume.The weighting is then determined by looking at the market capitalization. Only the free float shares are taken into account, which are the freely tradable shares. One company will never receive a weighting higher than 15% to prevent one fund from exerting too much influence on price movements.The index is revalued twice a year: when another company has earned a place in the index, it is replaced. With each revision, the weighting factor is re-determined, which should not change the value of the index. The index is 1/100 of the value of the basket of shares in euros.

Criticism of the AEX index

The AEX is not a holy house and the importance of the index is declining more and more. The index is no longer a good indicator of the Dutch economy. The distribution of funds within the index is rather skewed and some companies in the index have almost no connection with the Netherlands: a good example of this is the company ArcelorMittal.Due to the fact that the business community is operating more and more internationally, international indices such as the Euro Stoxx 50 are becoming more popular. Because of the name recognition you still hear a lot about the AEX in the news.

What other indexes are there in the Netherlands?

In the Netherlands, in addition to the AEX, we also have the AMX and AScX index. The AMX Index (Amsterdam Midkap Index) contains the 25 medium-sized shares that did not make it into the AEX. The AScX Index (Amsterdam Small-Cap Index) is the third index and contains the numbers 51-75. When you want to invest in smaller companies, these indices can be more interesting.

Investing in AEX futures

It is also possible to invest in the AEX with a future. An index future is always 200 times the size of the index. When the index stands at 600 and rises to 610, your profit is 10 X 200 = €2000. As you can see your profits and losses quickly increase with futures. Investing in the AEX with futures is therefore only recommended if you have sufficient experience and capital.

Price developments of the AEX

The AEX is a relatively small index compared to, for example, the Dow Jones or S&P 500. Because of this, the price of the index can sometimes make strange jumps. Large parties can manipulate the price somewhat and at least temporarily allow it to move upwards. You often see this during lunch or 5 minutes after closing when the professionals can still place orders.It is also important to note that dividends paid out are not included in the stock exchange chart. The price of the AEX therefore drops when dividends are paid out.AEX price developments

The price development of the AEX between 1993 and 2010

The role of world news

The price of the AEX is mainly influenced by world news. Surprisingly enough, news relating to the Dutch economy has hardly any influence on the development of the AEX’s price. This is because the large multinationals included in the index mainly operate internationally. Many foreign parties also invest in the AEX index. As a result, you see that the AEX often moves along with the stock market development of the S&P500.

The importance of a few companies

When investing in the AEX, it is important to remember that only a handful of companies has any real influence on the share price. Shell and Unilever are so large that many other, smaller funds only have influence on the AEX behind the decimal point. Therefore, pay particular attention to the large parties within the index: they ultimately make the difference!

How do you achieve better results with investments in the AEX?

You probably want to invest in the AEX to achieve good results! With these tips, you will ensure that you achieve the highest possible return with your investment in the AEX.

Analyse the index

The composition of the AEX index can change regularly. During the dot com crisis, for example, you saw that the index consisted of many overvalued internet companies. At that time, you mainly invested in internet companies when you bought an ETF on the AEX. Just before the credit crisis, this was very different: the index consisted mainly of banks.Because the composition is constantly changing, you are also investing in other sectors. Therefore, keep an eye on whether the index is still sufficiently spread across different sectors.

Follow the news

When actively speculating on the price of the index, it is important to keep an eye on the world news. The largest Dutch companies are heavily dependent on economic developments in the world. If the world economy is doing well, the AEX will probably also put down green numbers.

Also look at other options

Buying an ETF on the AEX is certainly not a bad investment strategy. However, it is important to invest money in other markets as well. The AEX on its own does not provide sufficient diversification to achieve lasting, stable results.

Buy AEX shares

Buying individual AEX shares can work out well, at least if you know how to select the best shares. We have a special page on trading.info with all interesting Dutch stocks. Do you want to know how to invest in Dutch AEX shares? Then visit our special:

Relationship between risk and return when investing

Risk and return are always linked when investing: the higher the risk, the greater the (potential) return. But how quickly does the risk increase and to what level do you dare to go? In this article, you will discover how risky investing is.

What is the return?

The meaning of return is simple. The return on an investment is the result that you achieve in proportion to its value. When you buy a share for $10 and you achieve $1 in return because the price increases, your return is 1%.

What are investment risks?

Investment risks are all things that can cause the value of your investment to plummet. Not all investment products have the same risk. In this article, you will discover the relationship between risk & return.

What is the relationship between risk and return?

Without risk, you will not achieve a (good) return. When you put money in the bank, you always lose. The low interest does not outweigh the inflation. Over time this means that your capital decreases in value.

Saving your money on a bank does not make you rich. Saving does have the advantage of being practically risk-free. The chance that a bank will fail is quite small, even in times of crisis. And when this does eventually happen, many governments will step up and ensure that you won’t lose your deposit. If you want to obtain a better return, you should look into investment opportunities.As an investor, you are paid to take risks. People don’t just invest their hard-earned money: they expect something in return. In this article, we look at the relationship between risk and return for the most popular investment products. You can directly navigate to a specific type of investment to learn more:
  • Time deposit: you receive a fixed amount of monthly interest
  • Bonds: you lend money to a company or government
  • Shares: you trade in the price development of shares
  • Real estate: you can for example buy a second home
  • Derivatives: the most risky option with potential high rewards

Is a time deposit a good choice?

If you want to achieve a higher return without significant risks, it is wise to open a time deposit. With a savings account alone, you only receive a very low-interest rate. With a time deposit, you receive a higher interest rate over your savings. A disadvantage of a time deposit, is that you will not be able to access your funds for a certain period. It is therefore wise to determine for which period you do not need the money.

A good party where you can open a deposit is Raisin. With this party, you can directly compare the different available time deposits. For every deposit you can verify under which conditions your savings are guaranteed. Use the button below to directly visit the website & explore the possibilities:risk return relationship

How risky are bonds?

If you want to achieve a higher return without too high risks, bonds might be something for you. With bonds, you lend money to a company or government. After you buy a bond you periodically receive an interest payment. At the end of the term you receive back the amount you invested initially.

The only real risk of a bond is the possibility of the company (or even the government) going bankrupt. In that case, you will most likely lose at least part of your investment. By paying close attention to the creditworthiness of the party behind the bond, you can avoid losing your investment.Of course, your investment result can also be less favourable. This happens when the market interest rate rises. You will then receive a lower return on the bond you own in relation to the bond you can buy now. Your interest payments are certain, where it is not guaranteed that you will still be happy with these payments in the future. Would you like to know more about investing in bonds? In our course about investing in bonds you can find all the information you need:

What about the risk & return with share investments?

You can achieve a high return with shares. By buying and selling shares at the right time, you can earn a lot of money by day trading. You can also invest in shares for a long-term strategy. By structurally reinvesting the dividend, you can build up large capital in the longer term.

This higher (potential) return comes with risks. The prices of shares move faster than the prices of bonds. If you are unlucky, the price of the share you bought can drop sharply. You also have to keep in mind that the dividend payments are not a certainty. When you buy bonds, you do receive a fixed payment. When you consider buying shares for the long term, it is therefore wise to first apply an extensive analysis to avoid disappointment.There are many differences between the potential return & risk of different stocks. Some stocks move very stably and are considered relatively save. Other shares have a more speculative character and their price developments are more dependent on future growth. There is a chance that the shares of riskier companies become worthless at some point. The potential return with share investments increases, when you take higher risks.Do you want to learn the best methods you can use to buy shares? In our article about investing shares, you learn everything you need to know:shares risk

What about the risk of real estate?

More and more people discover the appeal of investing in real estate. With an investment in real estate, you can earn money in two ways. When you own a property, you can collect rental income. Besides that, the value of your real estate might increase over time. Since you immediately receive an income through rental income, the risk of real estate is a bit lower. It is possible to sell real estate at any moment.

Yet, investing in real estate is by no means completely without risk. You often need a lot of capital to purchase a second house. Because of this, you often pay financing costs over the loan you need. In the long term, you also have to repay this debt. When the value of the property drops significantly, you can even achieve a significant loss.Do you want to know how you can invest in real estate sensibly? Are you curious how you can achieve a good balance between risk and return? Read our extensive ‘investing in real estate’ manual and learn all the secrets:

Options & other derivatives

Finally, you can also actively trade options and derivatives. With both, you can achieve enormous returns (sometimes hundreds of percentages on one investment). However, derivatives also involve higher risks.This is because you often use leverage with derivatives. When a stock rises a few percent in value, you can quickly gain or lose tens of percent. Investing in derivatives is therefore only for investors with nerves of steel.Investing by using derivatives can be very profitable. Given the high risks, it is however advisable to spread your investments over different type of investment products.  Do you want to discover whether trading in derivatives is suitable for you? Then open a free demo account with a broker and try the possibilities without risk:

What is a risk profile?

When you invest in a fund, you often have to select a risk profile. These profiles are often divided in several categories: very defensive, defensive, neutral, offensive, and very offensive.

With a defensive profile, your money is mainly invested in investment products with a relatively low risk. An example of a low-risk investment product is a bond. Offensive profiles invest more in risky stocks.With a more offensive profile, you often achieve a higher return in the long term. However, you can also expect greater losses in the short term. Therefore, only invest in an offensive profile if you have a long investment horizon. If you have time, you can wait for a recovery when the markets crash.

Does the best investor achieve the highest return?

This certainly does not have to be the case. You can also win the lottery by gambling. However, this does not make you a skilled investor. It is important to always invest according to a good plan.

When you can choose between a 10% chance of an 80% return and a 90% chance of a -20% return or a 90% chance of a 12% return and a 10% chance of a -4% return then the second scenario a lot more stable.It is therefore important to also take the volatility of your investments into account. A good investment portfolio does not continuously make huge jumps down and up. Most people prefer to achieve a stable, predictable return.

risk profileHow do you want your return to grow?

How can you reduce the risk?

You know after reading this article that there is a clear link between risk and return. You can reduce the risk by managing your investments in a smart way. It is especially important to diversify your investments over different products. When you invest in different investment products and regions, you reduce the chance that you will lose a substantial amount due to one bad investment.

Besides this, it is of course also advisable to do enough research. It does not matter whether you invest yourself or through an advisor. Even when you use an advisor, it is wise to track what happens with your money.

What is a bubble in the economy?

Sometimes things seem to be going very well in the economy for years. There are golden times and there seems no end to prosperity. But when there is a bubble in the economy, these good times can suddenly end. But what does a bubble mean and how can you recognize it? You can read all about it in this article!

What is a bubble?

A bubble is a situation in which the value of something increases dramatically for no apparent reason. The price is then far above the actual or intrinsic value. A bubble or bubble always ends up bursting with many investors losing their money.

How can you benefit from a bubble yourself?

As an investor, you can make a nice profit during a bubble. You do have to remember that it is very difficult to recognize a bubble. Afterward, people think everybody who did not see it should have been an idiot. However, when history has yet to be written, it is very difficult to make the right decision.In any case, it is important to get out at the right time. The smartest investors also manage to benefit when the bubble burst. This is possible because nowadays, you can also make a profit when prices fall. Do you want to know how this works? Then read our article on this topic:

How can you recognize bubbles?

It is very difficult to spot economic bubbles. Entire governments and systems have collapsed because a bubble bursts apart. In retrospect, you can easily recognize a bubble, but if you are in it, this is a lot more difficult.Still, some characteristics make it likely that there is a bubble:
  • The market price is above the actual value.
  • The underlying asset must be innovative in some areas.
  • The actual return will not follow until a later point in the future.
  • A bubble will pop at some point in the future.
That novelty is important is evident from the various hypes. The Bitcoin was a new technique that was blown up to enormous proportions. Also, packaged mortgages and tulips in 1600 were all new products. After all, it is a lot more difficult to determine the value of something new.The moment when the return is expected is also important. This moment must be far enough in the future. After all, it takes time for an economic bubble to develop.Ultimately, you only really know whether something is a bubble when it bursts. Until then, you can never claim with full conviction that there is a bubble.

economic bubble

What are the consequences of a bubble?

A bubble often has negative consequences for the economy. It is a form of wealth shift in which a large group of people loses a lot of money.A small group of people is there from the start. For example, they buy Bitcoins for a few cents and see them rise to a value of tens of thousands of dollars. However, most people wake up (too) late and buy the Bitcoins after they have raised enormously.Ultimately, you often see that a small group of people manage to become wealthy from a bubble, while a large group of people lose a lot of money. A bubble can even trigger a recession. This is more likely when the number of people losing their assets is high.

What is the first known bubble?

The first known economic bubble took place in the Netherlands. We travel back to the year 1630 when Amsterdam was in the golden age. Amsterdam was hugely successful and made loads of money by trading with other countries.A plant from the Ottoman Empire turned out to grow well in the Netherlands and quickly gained popularity. The flower was seen as a status object by the wealthy aristocrats. If you had a garden full of tulips, you had to be very successful.As a result, the price of a tulip quickly increased. When many people want something, you see that the price rises sharply. At one point you could even buy an entire canal house for a tulip. Of course, this sharp increase could not continue: in 1637 the price of tulips completely collapsed.This was the first economic bubble to fall apart. Many other bubbles would follow throughout history.tulip mania price trend bubble

How does a bubble unfold?

The research of the economist Hyma n P. Minsk can help us to understand how a bubble develops.  According to him, every bubble follows a few fixed steps: displacement, boom, euphoria, profit-taking and panic.

Displacement

Investors become interested in a new investment product. This is due to new development. This could be a new technique or low-interest rates.

Boom

Due to the increased interest, prices start to rise. As a result of this increased interest, the new investment product receives even more attention. The upward trend  that follows lures many people in that fear missing the boat.

Euphoria

The price of what the bubble relates to is reaching unprecedented heights. The price rises and rises and no one expects it to ever fall again. Investors lose their caution and buy blindly.

Taking profit

It is not easy to predict when a bubble will burst. Still, some people manage to take their winnings at the right time. It is wise to do this when there are clear warning signs. For me, this was the case with the Bitcoin hype when even the postman asked me if he should buy cryptocurrencies.

Panic

More and more people decide to take their profit. As a result, the price starts to fall. The decline causes investors to panic, and they start dumping their securities. Due to the much higher supply and the decreased demand, the price collapses completely. The bubble has burst!

What is the internet bubble?

Internet companies were experiencing golden times in the late 1990s. The internet started to grow stronger, and it became clear how much potential this new technology had. Large companies such as Microsoft, Yahoo, and Google were characterized by rapid growth and became very popular in a short time span. Many other companies followed in their footsteps and wanted to surf the successful wave of the Internet.The shares of internet companies were no longer valued like other shares were used to. The value of an internet company stock was now determined by looking at the growth and return. The profitability of a company was completely lost sight of. Investors believed that growth would be most important and that profit would eventually follow.However, this enormous success was followed by the so-called ‘dotcom bubble‘, or the internet bubble. Due to the popularity of the World Wide Web and the notion that failure was impossible, investors massively bought shares of these companies. As a result, stock prices rose rapidly and then completely collapsed. The collapse happened because many companies in the sector were unable to meet expectations. Only the financially strong companies survived.Internet bubble

The real estate bubble

Another famous bubble is the real estate bubble that took place in 2008. Buying real estate often happens by using a mortgage. As a result, there is always a chance that the mortgagee will not be able to pay the monthly costs. In such a case, the banks become the owner of the property. They will put the home back on the market to make up for the failed mortgage payment.In 2007-2008 this system failed, and we experienced the real estate bubble or credit crisis in the United States. It was made too easy for those with little wealth to get a mortgage. Ultimately, these people were unable to repay their mortgages. Banks could no longer sell these homes on the market, causing prices to collapse. The real estate bubble bursted as a result. Many banks went bankrupt and had to be bailed out by the government.Accusing fingers quickly pointed at the too-liberal government policy. Banks were allowed to maintain smaller buffers for mortgages aggregated within bonds. This quickly resulted in complex financial products where it was unclear what the quality of the underlying mortgages was. Ultimately, the creditworthiness of the mortgages wrapped in bonds turned out to be lousy. In the aftermath of the credit crisis, banks were obliged to set up larger buffers.Bubble real estate

The price of gold

When the economy is experiencing bad times, many investors often turn to invest in gold. This causes the price of this precious metal to rise enormously. You often see this in times of disaster.This happened, for example, during the debt crisis in Europe. Gold prices continued to peak during this economic catastrophe. Ultimately, however, the price of gold fell sharply again. Within a bubble economy, you always fall deep after the high climb.

Bubble explanationThe natural development of an economic bubble

The cryptocurrency bubble

Another great example of a well-known economic bubble is the cryptocurrency bubble. Seduced by the media, many amateur investors decided to buy Bitcoins and other cryptos. Top after top was reached until the price hit well over $20,000. However, the coin itself had not yet proven its worth. It was barely used.Bubbles are often created by a mass hysteria in which people lose sight of reality. This is also the case with the cryptocurrency bubble. The bubble burst and all kinds of hopeful people lost their dreams. Therefore, do not blindly follow the crowd and consider whether there is a basis for price development or whether it is just a bubble.Bitcoin bubble

The stock bubble of 1929

Another well-known bubble is the bubble of 1929. The roaring twenties was a period in which it seemed impossible for anything to go wrong. Stock markets were up and up and America was doing well. At the end of the twentieth century, the tide seemed to be turning.Factories produced too many products and sales lagged. As a result, factories decided to drop production en masse. Many people were fired and lost their incomes, resulting in a further decline in purchasing power. This puts the economy in a vicious, negative circle.The stock markets crashed and the economic situation deteriorated rapidly. The crash on the American stock exchange eventually even contributed to the rise of Hitler and fascism in Europe.

How does a bubble form?

There is no single answer to how a bubble is created in the economy. Economists have different views on bubbles in the economy.The post-Keynesian school believes that the economy will automatically alternate between boom and bust. People can naturally become overly optimistic in times of increasing demand. According to this teaching, it is not possible to prevent bubbles. It is, however, possible to absorb the consequences of the bubble to an extent by applying smart government policies.The Austrian school believes that intervention in the economy causes differences in the economic cycle. The internet bubble is said to have been caused, for example, by the FED investing too much. Economists differ greatly in their views on economic bubbles. This makes it difficult to determine the causes behind them and the best approaches to solve them.

How can you make money from falling share prices?

Many investors become anxious when share prices fall. Out of fear, they often sell some of their shares. This is a shame! Especially in times of falling share prices,  you can achieve a great result. It is possible to achieve a good result on the stock exchange regardless of the direction of the price. But what is the best way to deal with falling stock prices?  In this article you can find all the information you need to profit from decreasing prices!

How can you make money from falling prices?

Making money from falling prices is certainly possible. There are several methods you can use to speculate on a falling price. You can apply the following methods:

  • Short position: with a short position you earn money when prices fall.
  • Buying stocks: if prices fall, you can buy shares more cheaply.
  • Options: with options you can speculate on a falling share price.

Method 1: Take a short position

Everyone understands that it is possible to make money from falling share prices. When you buy a stock and the price rises, you automatically get a positive result. However, it is also possible to bet on a falling price. When you do this, you achieve a positive result when the share price falls. When the price of the share does rise, you achieve a negative result.But how can you go short on a share? You can do this with a derivative. CFDs are a popular option for this purpose. A CFD is a contract on the price difference of a share. You can indicate whether you expect the value of the underlying share to rise or fall.  Please note that this strategy is especially suitable in the short term.You can try trading with derivatives completely risk-free by using a demo. This is definitely advisable: by using a demo you can get used to betting on rising and falling prices. Please note that this strategy is especially suitable in the short term. Would you like to try out the possibilities with a free demo? We have listed the best practice accounts for you:Making money falling prices CFD

With a CFD broker, you can easily benefit from falling prices

Method 2: look for bargains

Low stock prices can also be extremely attractive for investors with a long-term  strategy. You will need enough money to buy new shares, though. You often see that stock prices that fall sharply, rise again eventually. Even after the crash of 2008, most shares recovered in two or three years.When stock prices crash, it is often smart to buy additional shares. Through this strategy, you can achieve even higher profits. By buying the shares against a cheap price, you are likely to achieve a higher price gain. In addition, you simultaneously benefit from a higher relative dividend yield. Companies can pay out part of the profits in dividends. When the company flourishes, this percentage can rise considerably which makes your investment even more profitable.

Method 3: through options

You can also use options to take advantage of a falling price. To achieve this, you can use a so-called put option.  A put option makes it possible to sell a stock at a certain price. When the price drops, you can buy the share against a cheaper price by using the put option. Subsequently, you can sell the share against the higher market rate. This makes it possible to benefit from a fall in the stock price.Options expire at a certain point. Only within the term of the option can you exercise it and thus benefit from a falling price. You pay a premium for an option, therefore you must buy an option that becomes profitable before its expiration date. Do you want to know more about options? In our special on options, you can read everything you need to know:put option falling price

A lower share price means more profit with a put option

Are falling share prices a problem?

In the news, falling share prices are often reported as if it is a disaster. When you take a closer look at what is going on, it is often not as bad as it is made out to be. Statistically speaking, the stock market has a negative result for every one in three years. Consequently, you always have a 33% chance of losing money during a year on the stock market.

When we look at the monthly results, we see that about 60% of months achieve a positive stock market result while 40% of the months are closed with a loss.Yet falling stock prices are anything but a problem. They are a normal part of trading. Nothing rises forever: there will always be corrections. However, we can see from history that these corrections are always temporary. The general direction is always up.

How do you deal with falling stock prices?

Over the last hundred years you can see that stock prices have always risen. This can easily be explained. Both the population and productivity  worldwide increased. As a result, companies are making more and more profits. This does however not mean the stock market is always profitable: over time stock prices fluctuate. They will never rise in a straight line.

As a smart stock trader, you can benefit from this fact. To succeed, It is important to counter your natural reaction. In our brain you can find a part we call the amygdala. This fear centre in the brain becomes very active when we lose something. As a result, you can see that many investors sell their shares en masse in times of crisis.investors fear falling pricesSelling your shares during a crisis is often not a winning strategy. Selling your shares during a fall is risky, because you never know for sure where the bottom is. Until you sell the shares, your loss is just a paper loss. When you sell the shares, the loss is final, and you are stuck with it. It is therefore important to only invest with money that you can miss for a longer period of time. This gives you space to wait for better times.

What is a good investment strategy?

A good strategy to deal with both falling and rising rates is diversification. Of course, it is wise to spread your investments across different sectors and regions. This way, you avoid getting a bad result because one particular sector or region is not doing well. However, to counter the negative effect of falling stock prices, it is also important to spread your investments over a time.

You do this by boarding the stock market at different times. By investing a fixed amount each month, you prevent yourself from investing a large amount at the top. A good way to stagger your entry is by buying up funds or ETFs. By investing smartly,  you can make money under all market conditions.

How do you benefit from sharp declines?

Increases often go quite gradually, while sharp declines often happen at once. You can make a lot of money with this! Negative news around a stock or economic zone may be an indication that the share price is going to fall sharply. This happened, for example, with Luckin Coffee shares when it became clear that they had misrepresented the company figures.

Luckin coffee falling pricesWhen you expect a decrease, you can achieve even greater results by using leverage. By using a lever, you can invest with a higher amount of money than you deposit. With a leverage of one to twenty, a fall of $1 is worth a profit of $20. Of course, your loss also increases drastically when you use leverage. It is therefore important to be careful when using a lever!When a stock drops by 30 percent, you can get a return of 300 percent when you use a leverage of 1:10! However, it is important to remember that you can also lose your deposit when the share price drop by only 10%.During a crisis, you can achieve high returns. Active trading during an economic crisis can therefore be a good idea when you know what you are doing.

Movement is all you need!

At the end of the day, you only need volatility to achieve a positive trading result. It does not matter if prices rise or fall: You can always make money. However, it is important to buy or sell at the right time. You can apply this timing by practising a lot with a broker through a demo. By practising a lot, you can learn to recognize certain patterns. When you obtain enough experience you can predict when prices may fall.

Buy and sell: how do you do that?

Normally, you select the option to buy shares. When you buy you make money when the price rises which can be very profitable. Lately, it has happened that the stock price slumps considerably.When you expect the price to decrease, it is wise to choose the option to short sell. When you short sell, you obtain a positive result when the price of the share drops. This makes it possible to benefit from a situation where most people lose a lot of money!buy sell options
Informative: in stock market terms, buying is also called long and selling is called short.

Conclusion: how can you make money from falling prices?

There are two strategies you can apply to make money from falling stock prices. The first strategy is to actively trade the markets and benefit from the strong, downward movements.  With the second strategy, you buy shares when the price reaches a low point.

Hedging: what is hedging and how can you do it yourself?

As an investor, you want to achieve the highest possible return with minimal risk. One technique that can help is hedging. Hedging is the (partial) limitation of a financial risk. In this article we discuss several methods you can use to hedge as an individual. We also discuss how hedging can help large companies and brokers.

What is hedging?

Hedging refers to limiting your financial risks by taking an opposing position. This is comparable to taking out insurance. Like insurance, a hedge is never free. As an investor, you are paid to take risks. If you reduce the risk, you will have to pay the other party for taking those risks.

There are several techniques you can use to hedge. Hedging is used by large companies, investment funds, but also certainly by private investors. Do you want to know more about hedging? In this article you can find everything you need to know about this topic.

Why can hedging be valuable?

Hedging is an attractive option when you expect exposure to an above-average risk. Below we will discuss some situations where it may be smart to hedge your financial risk:

Foreign exchange risk hedge

When you purchase shares abroad, you are often exposed to a currency risk. An example can be buying Google shares that are listed in dollars while using euros yourself.When the euro then drops in value, you get fewer dollars back for your investment. By hedging, you can minimize this risk.

Sharp declines

By hedging you can also protect yourself from a strong market decline. When the economic situation is uncertain, this can be an attractive option. For example, if important figures will soon be made public and it is not clear whether the results will be positive or negative, you can use a hedging position to protect your investment. 

HedgingHedging stabilizes the results. It costs money but reduces the risk.

How can you hedge?

There are several ways you can protect an investment position. We will discuss the key strategies you can apply:

Currency risks hedge

When you regularly trade in foreign equities, there is always the risk that your investment will be affected by the foreign exchange rate of the country concerned. You can hedge this risk by also taking a currency position. Let us explain this through an example of an investment in an American stock. In this example you live in a country that uses euros. When your country uses a different currency you can replace the word euro with your own currency.If you think the value of the euro is going to fall, the best thing you can do is buy dollars and then buy the stock. Afterward, when you sell the share, you will receive more euros back for the same amount of dollars.Do you expect the value of the euro to increase? Then your investment in U.S. dollars could turn out badly. Even if you make a profit in dollars, your investment in euros can decrease in value. By hedging, you can reduce this risk.You can hedge this risk by borrowing dollars instead of buying them. When the euro becomes more valuable, you will later have to exchange fewer euros to pay off the debt. This makes it possible to cover the risk of a falling dollar.

Hedging a portfolio

Investors or traders with a long-term vision often own a stock portfolio. When you own several shares, it can be very pricey to sell them all in batches. You would have to pay transaction fees repeatedly. By hedging you can protect  your portfolio against large downward price movements.The best way to hedge your portfolio is to use derivatives. For example, by buying put options or by writing call options on the shares you already own, you can protect your stock portfolio from a decline. You always pay a premium for these options. Therefore, it is important to only hedge your position when there is a good reason for this.In addition, you can use other tools to hedge your portfolio. For example, you can take a short position on an index by using a CFD or future. With a short position, you get a positive result when the price drops. When the entire market collapses, you will be compensated for the loss on your shares (in part). That way, you do not have to sell your stock portfolio.

Hedging a share

It is also possible to hedge a stock. You can do this if you are afraid that the price of the share will drop significantly. You can hedge a share by looking for another share in the same sector.It is smart to own shares in a sector you have a lot of confidence in. In the oil sector, for example, this could be Shell. Then you start looking for a stock that you think is slightly overvalued. This could be a related company like Total. You then take a short position on this stock. When the stock prices of the entire sector falls, your risk is absorbed by this. However, this also ensures that the potential profitability of your position decreases considerably.

Investing in a safe haven

Another way to hedge your investments is to invest in a so-called safe haven. The most famous example of this is gold. During a crisis, you can see that the price of gold often reaches record highs. The profit you earn with gold can be used to (partially) offset the losses on your investments.

How much does hedging cost?

Hedging is never  free. You should only hedge your positions when you think you are at great risk. It lowers your risk, but also your potential return.

You pay transaction fees over the new position. These costs reduce your return. It is always advisable to choose a low-cost broker,  so that you can keep these costs as low as possible.Hedging also costs money because you miss out on returns. We explain how this works through an example. In this example, you invest in a share of $100. You are afraid the stock is going to fall sharply, which is why you want to protect the position by setting up a hedge. You therefore open a short position besides your stock position.If the stock does indeed drop to $80, the hedge ensures that you do not lose any money. You lose $20 in value on the stock, but because you have opened a short position you will also receive $20. You can offset the profit and loss. By closing the short position, you even clear the way for a profit when the price recovers.The share price can also move in the other direction: the price rises by $20 to $120. Your share is worth $20 more, but your short position is worth $20 less. The revenues and costs are again weighed against each other. In this case, you shouldn’t have had a hedge. Without the hedge you would have achieved a return of $20. This reflects another way hedging can cost money; through missed income.

How do companies hedge their risks?

Companies also limit their risk exposure by hedging their positions. For example, an aerospace company is heavily dependent on the price of kerosene. When this fuel suddenly becomes much more expensive, the company’s profitability is compromised.

An airline can cover these risks by concluding a forward contract. With a future, they can buy kerosene for a fixed period at a fixed price. This way, a company can ensure that they can buy certain raw materials at a certain fixed price.A company can do the same with currencies. Many companies operate internationally on a big scale. A multinational receives income in all kinds of currencies. Here too, a company can stabilize its operating results by buying contracts that offer a certain exchange rate. Without such contracts, companies would be a lot less secure in their international business adventures. 

hedging oilThe price of oil fluctuates greatly. Companies can protect themselves from this by hedging.

Hedge funds

Investment funds also practice hedging. Hedge funds are the best-known example of this. A hedge fund can take both buy positions and short positions in the market. For example, they buy stocks they consider undervalued and take short positions on stocks they consider overvalued.Hedge funds can deliver good results in both economic good and bad times. By benefiting from both rising and falling prices, they are more flexible than the more traditional investment funds.

How do brokers hedge?

You are probably aware that brokers also hedge. At first glance, this does not seem logical. Hedging is, after all, taking an opposing position and for that reason, your price gain would be a loss for the broker. However, brokers do have a strategy and only hedge the positions that are available as an opposite internally.

Stripping positions

Let us say there are 200 purchase orders for Apple shares and 100 sales orders for Apple shares. The broker pays transaction fees when the position actually opens up on the market; therefore it is smarter to cross 100 positions off against each other. The broker will then hedge 100 shares. This makes no difference, as there are 100 customers buying internally at that price and 100 costumers selling at that price. Only 100 shares will have to be sold on the market.This makes it possible for the broker to pay less transaction costs, and they make a profit on both the short and the long position. After all, the broker earns from the spread and can thus earn money practically risk-free. When the positions are opened simultaneously, the loss of one position can be used to pay for the profit of the other position.

Do brokers hedge honestly?

When brokers hedge in an honest fashion, this strategy does not matter, because, as a client, you do not even notice if the stock was actually bought or sold on the market. It is important to keep an eye on whether the broker is playing fair. If the broker messes with the price, they would earn even more. This is obviously illegal and fortunately most brokers play the game according to the rules. Nevertheless, it is important to be vigilant of this kind of practice!

How can you invest during an economic crisis?

Both the Global Financial Crisis and the European debt crisis had a huge impact on the stock markets. A large volume of bad news can lead to unpredictable stock prices movements. Nevertheless, an economic crisis can actually generate opportunities for investors to achieve great results. In this article you can discover how you can actually make a profit from the stock markets during an economic crisis.

In short: 3 methods that can help you to make a profit during a crisis

Churchill once uttered the famous words: “Never let a good crisis go to waste”. It is exactly when the markets are in panic mode that you can achieve great results as an investor. In this article, we discuss three methods with which you can make a profit during a crash.

Opportunity 1: Active trading during a crisis

There’s a lot of movement during a crisis. The share prices of companies often drop massively. By investing cleverly, you can take advantage of these falling stock prices.To benefit from decreasing stock prices, you could use a derivative like the CFD. CFDs make it possible to short sell a share. When you short a share, you actually get positive results from falling share prices. Moreover, you can make use of leverage. Through this leverage, you can open a bigger position for a smaller sum of money. You can read more about CFD’s in this article.It is definitely possible to make money during an economic crisis. Have a look at the graph of the Dow Jones in the time period before the Financial Crisis of 2007-2008. Stock prices went down enormously. If you had opened short positions you could have profited from this.Do you want to take advantage of the next crisis? Open a free demo with one of the many brokers and start practising:

Economische crisis shortBy going short, you could’ve made a huge profit. 

Opportunity 2: low volatility shares

During a crisis, it can also be wise to invest in low volatility shares. Low volatility stocks are shares that move less strongly. This means that they often barely fall in value during a recession. In some cases the prices of these shares may even be unaffected. Low volatility shares are on the other hand also less exciting. When the stock markets are excelling, these shares barely rise.But which kinds of company shares have a low level of volatility? These are often companies that  provide services or products that are always in demand. An example can be a company active in telecommunication services: even in times of crisis we will still make phone calls. Another example is a company that is active in essential products like food or band-aids.An example of a relatively stable share during a recession is McDonald’s. During an economic crisis, people have to save up more money. This leads to an increase in customers in fast food chains because of the relatively cheap food. When the economy is recovering, it is the poorest people who are then able again to afford McDonald’s again. Due to these reasons, the economic situation only has a limited influence on the results of the McDonald’s share.There are even some products that see a rise in demand during a recession. Examples are alcohol or other forms of entertainment. When things are rough, people increasingly look for distractions.McDonalds revenue

Opportunity 3: Crisis as an investment opportunity

A crisis can also be used as a good investment opportunity, but only when you anticipate that the stock markets will rise due to (potentially temporary) good news. The proverb “after a storm comes a calm” definitely applies to the stock markets too. As you can see in the graph below, the aftermath of the Global Financial Crisis was the ideal moment to buy shares.Because investors panic, the stock prices fall immensely. However, this drop doesn’t necessarily have to be proportionate to the financial situation within the company. Sometimes the price of a share falls strongly, even though there is not much wrong with the company. It can therefore be wise to look for bargains during a crisis. If you decide to buy shares during a crisis it is important to extensively research the financial figures of a firm. 

Economic crisis buying momentThe economic crisis of 2008 was the perfect investment opportunity.

How do you handle a crisis as a long-term investor?

As a long-term investor, it is a wise move to collect sufficient cash. When you have many liquid assets at your disposition, you can better profit from the recovering market at a later time.

During an economic crisis, it’s hard to determine how high or low the stock prices will move. That’s why it’s advisable to join in gradually. When you invest a set amount of money monthly, you enter at the low points and at the peaks. This makes it possible to achieve a more stable return.Long-term investors can hold their shares for a longer period. You’ll still receive your dividend and in the long run there’s a high chance of recovery. By buying more shares during the crisis, you’ll drive the average price down of the shares you buy.It can be a smart move to invest some extra money in safe havens. The most famous safe haven is an investment in gold. When people are unsure about the future, they often purchase these kinds of safe havens. You can then use the profit you make with your investment in gold to compensate for (temporary) losses.It is also possible to take out an extra insurance during a crisis. You do have to pay a premium for this. You can take out an insurance by speculating on falling stock prices. This is possible by buying options, for example.Either way, it’s important to remain calm. Don’t look at your investment results too much. The only way to fail during an economic crisis is by making decisions out of panic. 

gold economic crisisGold performs well during an economic crisis

How do you handle an economic crisis as an active investor?

Active investors or traders do not have any trouble with buying and selling shares during a crisis. They do this by regularly trading in the direction of the trend. Do remember that it’s difficult (or sometimes impossible) to predict the low point of a crisis. When you’re on top of this, you may decide to temporarily sell a part of your shares.A smarter strategy can be to short sell shares. You can do this by making use of CFDs and options. By applying this tactic, you can actually make money from a decreasing stock price.For active investors, it can also be a good idea to temporarily invest in raw materials like gold and silver. Apart from that, you can also buy the shares of gold and silver mines.

What are crisis-resistant shares?

During a recession, it can be wise to buy crisis-resistant stocks. Some shares can resist strong storms. You do have to first study the cause of the crisis. The Internet Bubble, for example, had a different cause compared to the Global Financial Crisis. In the first case, many tech companies were performing poorly, while in the second case, you had to be wary of banks.

Crisis-resistant shares are in any case non-cyclical. This means that the profitability does not depend on the state off the economy. Supermarkets are an example of non-cyclical companies, because people also need to eat during an economic crisis.Shares that do well during a recession often times have high margins and low levels of debt. It helps when credit ratings are already good and when there are contracts for the long term. This way, a company is reasonably sure that more money will flow in.Let’s discuss some more crisis-resistant shares.

Unilever

Unilever is a big and renowned multinational. This defensive stock also performs well during an economic crisis. This is due to the fact that Unilever produces a lot of consumer products that are always necessary. Even during a recession, you don’t want to grow a huge beard. Moreover, the share pays out a fair dividend, which makes it a nice investment choice during a crisis.

Ahold Delhaize

Ahold Delhaize is also a strong share that does well during recessions. You can see this, for example, during the corona crisis. People still buy groceries during bad times. Because Ahold makes it possible to purchase them online, they can make a good profit in exceptional situations. Moreover, Ahold Delhaize has a strong market position, which makes this a great investment during a crash.

Admiral Group

Another example of a non-cyclical, crisis-resistant share is Admiral Group. Admiral Group is a British insurance company. In times of recession, fewer people hit the road. You can then notice that car insurances perform well above average during an economic crisis. Is the world pessimistic about the future? Then this could turn out to be a great investment.

The passive investment strategy

For people who have limited economical knowledge and who still want to take advantage of an economic crisis, the passive strategy can prove to be a great strategy. The idea is that you invest a set amount of money per week or month into an index fund.An index fund is a fund that passively follows a basket of investment products. It is important to choose a fund that contains a solid amount of diversification. By periodically investing passively, you join in at both the lowest and highest points. This way, you’ll achieve an average, good yield over a longer time period. There is a lower risk and the results are stable. However, it is true that you lose the opportunity to make huge profits by timing the market well.

Should you sell your shares during an economic crisis?

When you’re in possession of an investment portfolio with the purpose of achieving price gains in the long run, it is advisable to do nothing for now.You’ve purchased your stocks in the past because you trust the company. In many situations, the market prices are dropping because the economy is performing poorly. This does not mean the company is performing badly. After an economic crisis, it is actually always the case that there is a rebound, which is why selling is very unwise in this critical time period.

What is a stock market crash?

A stock market crash is a strong drop in the stock markets. During a crash, the majority of the market decreases in value. Investors often panic and try to sell their shares to prevent further losses. A stock market crash often goes hand in hand with an economic crisis.

What is the difference between a crash and a recession?

A crash has a more temporary nature. When you want to profit off of a crash, you have to act fast. A recession or economic crisis lasts longer. The recovery from a recession or economic crisis can take many years.

Should you invest during an economic crisis?

It is precisely during an economic crisis that you should invest! Historical figures show that investors achieve the highest yield during an economic crisis. The more pessimistic the general market, the more options there are available that can help you to achieve great results.However, you should keep a close eye on the risks. There is always the risk that certain companies don’t survive. That’s why you should ensure sufficient diversification and don’t invest your full capital in one risky share. Especially at the start of an economic crisis, it can be wise to invest in less risky stocks.
Would you also like to invest? Then check out our tutorial or the list of brokers.

Try fictitious investing

Many people have a negative image of investing: it would be boring and above-average risky. In practice, this does not have to be the case! Especially the new methods of investing can be very exciting and profitable. Through the internet, you can often try investing for free with a fictitious account. By investing fictitious you are not exposed to any risks!

How can you try fictitious investing yourself?

Wouldn’t it be great to become successful in investing? When you practice investing a lot, you can use the income you earn from your business or work to trade actively. By trying out the possibilities fictitious at first, you can be sure that you won’t immediately make a big loss.

The beauty of the modern brokers is that you can try investing for free with a fictitious account. A first possibility is to open a demo account with which you can use your play money to see what results you could achieve in real life. Fictitious trading is completely risk-free!It can be even nicer to trade with real money. As soon as you have gained enough experience in trying out investing within a fictitious account, you can start investing with real money. At most brokers it is already possible to trade from $100.Would you like to try fictitious trading yourself with a free demo? Use the button below to instantly compare the best demos:

What is ‘the new investing’?

Many people invest by putting excess funds in certain stocks or investment funds. After they do this, they leave the investment alone for many years. After ten years they determine whether they achieved a positive result. This is however not the only way you can invest. Personally, I use a different way of investing. This method is called ‘the new investing’ which can be tried with fictitious money.

This new method of investing or trading uses contracts on the underlying value of a security. These contracts are also referred to as CFD’s or contract for difference.  Using CFD’s you can trade in the value of almost anything: from currency pairs to shares and from commodities to index funds. The other day, I even spoke to a farmer who earned a little extra by trading in the prices of pigs!In my opinion, this fictitious way of investing has the necessary advantages:

You can apply leverage

With leverage, you can take a larger position with a smaller amount of money. For example, you deposit $100 and you can take a trading position of $1000. By using leverage both your potential losses and your potential profits will increase. In this article you can read more about investing with leverage. It is advisable to first try this option with fictitious money.

Investing with a small deposit

It is possible to invest in CFDs with a small deposit. With most brokers, you can open a position from as little as $100. Even without money you can get started: you do this by trading with fictitious money within the demo.

Speculate under all circumstances

You can achieve a good result with investments under all circumstances. You can bet on a drop in the price by opening a short position. Because of this, a crisis can be a good, profitable moment for you. Of course, when you start speculating, it is important to remember that you can also lose a lot of money if you make the wrong decision.

Try it for free

You can try this new way of investing for free with a fictitious amount of money. The beauty of fictitious investing is that your profits and losses are 100% fictitious. This prevents you from losing money as a beginner, and gives you time to become familiar with actively trading shares. Click here to see where you can try investing for free.
Tip: in our article on CFD’s you can read how this works.

How can you fictitious invest in shares?

Would you rather invest fictitiously in shares without actively trading them? That is also possible! Some people choose to keep track of their fictitious or fantasy investments on paper. This works fine in itself, but is a lot of work. For most investors it is therefore more attractive to invest fictitious with a software program.

The best program with which you can buy and sell fictitious shares is eToro’s program. You can try the possibilities there with a fictitious amount of money of$100,000. As soon as you are ready, you can deposit money and buy shares for real money. An advantage of this program is that you don’t pay commissions. This allows you to buy one share and still get a good result.You can try eToro’s program entirely without risk. Use the button below to open a free demo account directly:

fictitious investmentFictional investing on paper is old-fashioned

Some tips

I would like to give you some more tips that can help you to invest more successfully as a beginner.First of all, it is important to always use a stop loss. With a stop loss you can ensure that your position will automatically be closed in case of a certain loss. This makes it possible to go to work without the need to think about your trading positions.A piece of second advice I’d like to give you is that you shouldn’t go all-in right away. Try fictitious trading first with a free demo account and don’t risk more than two percent per trade. Only once you have tried the possibilities sufficiently, you could consider investing with real money.

Investing money: the 12 best ways to invest money

Do you want to successfully invest money in 2020, but do you have doubts about where to start? With our investment tips, you can make your money work for you! The great thing is that you don’t need a special diploma to take advantage of the many possibilities.

Where would you invest?

In my opinion, there is only one right moment to start investing: today! When you put money in a savings account for later, you know for sure that you will end up with less. Under the influence of inflation, you can invest less and less with the same amount of money in the future.

Moreover, by immediately starting to invest you can benefit from compound interest or return on return. Your money can grow exponentially if you invest the profits you make over and over again.compound interest invest

Your investment grows faster over time due to interest on interest

In this article, we discuss several attractive options to invest in:

1  Investing in the stock market

The most popular form of investment is still an investment in shares. Many people still have a dusty image of investing in stocks. Buying shares is something for men with boring suits, isn’t it? Nothing could be further from the truth! Nowadays, you can buy and sell various stocks with the push of a button.It is important to buy shares at different moments. Many people make the mistake of investing a large amount of money in shares all at once. However, it is very difficult to predict whether the stock market is on top or bottom. By stepping in staggered, you prevent yourself from stepping in at the top and therefore achieving a much lower return.With investments in stocks, you can easily achieve a 5 to 8 percent return on an annual basis. By constantly reinvesting your return, your assets can grow considerably in the long term. Do you want to know where and how to buy shares? In our article about buying shares you can read all about it:share investments timing 

It is important to step in staggered

2 Investing in real estate

Investments in bricks are still unprecedentedly popular. This is not strange: with an investment in real estate, you can achieve a double return. When you buy and rent out a house, you have a fixed income stream. Moreover, the prices of houses increase in the long term. So, when you sell the house in the future, you will achieve a nice return again!Especially in the current times, investing in real estate can be very attractive. Because of the low-interest rates, you can borrow money cheaply. At the same time, there is still a shortage of housing. As a result, the profit margin on renting out houses is high.Many people are afraid to invest in real estate because they think it’s a lot of hassle. However, this does not have to be the case at all! You can hire other parties to take care of all administrative matters for a small percentage. Do you want to know how investing in real estate works? Read our extensive guide about investing in real estate for more information:

3  Speculating with derivatives

Speculation is also becoming more and more popular. This is mainly because active trading or speculation has become increasingly accessible. You can open an account with various brokers and immediately start practising with a demo.A derivative makes it possible to speculate on rising and falling stock market prices in the short term. With derivatives, you can perform all kinds of interesting tricks: you can bet on a falling price or apply leverage to increase your potential profit (and loss!).A good party to speculate with derivatives is Plus500. With Plus500 you can try out the possibilities with a demo for free. Use the button below to instantly open a free demo:

4  Investing in an investment fund

Do you have little time, but do you want to take advantage of the developments in the stock market? Then it can be attractive to invest in an investment fund. An investment fund is a fund that invests money in a certain group of investment products. Some funds invest, for example, in a certain region or a certain type of company.In most cases, passive investment funds are the most attractive. For example, a passive investment fund follows the developments of a certain index. The costs of tracking a passive investment fund are relatively low. As a result, you can often achieve a higher return with this type of investment fund.A good party to buy shares in an investment fund is eToro. At eToro you can invest in many investment funds. Use the button below to directly open an account:

5 Investing in crypto coins

Crypto coins are still booming! The biggest hype has passed after the Bitcoin’s price plummeted in 2018. Yet, the technology behind the crypto mine is still rock solid. The fast and almost anonymous way to send money has some interesting applications.Moreover, we see that cryptocurrencies do well, especially in uncertain times. During the corona crisis, for example, crypto coins are on the rise. Investors like to step into investment products without counterparty risk in uncertain times.A modest investment in one or more crypto coins can generate a potentially high return for the brave investor. However, it is important to remember that the price can easily rise or fall by tens of percent within a short period. An investment in a cryptocurrency is therefore not for everyone. Do you want to know more about investing in cryptocurrencies? In our special you can read all about it:bitcoin bubbles

The Bitcoin fluctuates sharply

6 Investing in bonds

You can make an investment portfolio somewhat more balanced by adding bonds. Bonds are loans issued by a company or government. As a bondholder, you periodically receive an interest payment on the bond. You can also make a price gain if the value of a bond rises in the meantime.Investing in bonds is especially interesting when you have a short horizon for your investments. The return on bonds is lower, but the payouts are stable. This form of investment is therefore ideal if, for example, you are retiring soon. Would you like to know more about investing in bonds? In our special section you can read all about it:

7 Tracking smart traders

Another investment option is following smart traders. There is a kind of Twitter, but for trading transactions. Skilled (and less capable) traders share their investments there. You can then copy these traders for free within your account.However, it is important to investigate the traders well first. Check whether the way they invest suits your risk appetite. It is also important to check in between to ensure that the investor continues to perform well. These kinds of professional traders follow less fixed rules than, for example, an investment fund.You can try tracking traders for free with a demo at eToro. By using the demo you have nothing to lose! Use the button below to directly open a free account:82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money

invest in tradersSelect the traders you trust

8 Investing in raw materials

Investing in raw materials can be smart. At the moment, we consume more raw materials than will be added in time. Some important raw materials such as oil and natural gas could, therefore, be completely depleted in a few decades. Increasing demand together with increasing scarcity can of course only push up prices further.Are you interested in investing in raw materials yourself? You can do this, for example, by participating in funds that follow the price of a commodity. You can also invest in companies that are active in a particular commodity. For the brave investors, you can also speculate directly in the price of a commodity with, for example, futures.Do you want to know how to invest in the various raw materials? We have listed the possibilities for you in our special about investing in raw materials:

9 Investing in startups

Another popular option is investing in startups. Of course, you can put your hard-earned money into your neighbour’s business idea. However, this is not always the best option. Fortunately, there are all kinds of crowdfunding networks where you can directly invest in a business idea.Investing in a startup is quite risky. Only a handful of startups will be successful in the end and there is a risk that you will lose the entire investment. At the same time, you can also achieve a ridiculously high return when you make a good decision. Companies like Facebook and Apple were once small startups too…

10  Investing in consumer loans

We already showed that you can make money with bonds by lending money. However, interest rates on bonds are relatively low. You can therefore also choose to invest in consumer loans or P2P. The interest you can earn on these types of loans quickly rises to four percent.However, you have to take into account that during economically bad times fewer people can pay off their loans. In such a case, you can lose a substantial part of your investment. Investing in consumer loans is therefore not for everyone.

11  Putting your money on a deposit

Worldwide the interest rates on saving accounts are disappointing: you can consider yourself lucky if you still receive interest. If you want to put some of your money in a bank and still get a positive return, it can be wise to look around. In some countries you can still find less well-known banks that offer a higher interest rate. You often have to keep the money in your account for a fixed amount of time.Yet many people find saving money on a foreign bank account a scary idea. The company Raisin has found a solution for this. Through Raisin, you can easily save at foreign banks without compromising your safety. In most cases, the money you invest in a deposit is safe up to $100,000! Even if the bank collapses, you won’t lose a penny.Would you like to browse through the banks with higher interest rates? Use the button below to directly visit the website of Raisin:Raisin save

With Raisin, you will receive a higher return on your savings

12  Investing for your retirement

You can never start to early with building up your pension. If you start investing early, you will receive a much larger amount at the end due to the power of compound interest. Many governments also provide benefits to people who save for their retirement.

What’s the best investment now?

There is not one clear best investment option. What the best investment is depends strongly on your wishes & goals. Below we discuss the various factors you can take into account when selecting an investment:

The risk

Not every investment is equally risky. If your time horizon is longer, and you have a higher risk appetite, you can choose more speculative investment products. It is wise to create a healthy mix between more risky investments and relatively safe investments.

The duration

Not every investment is suitable for every term. Think carefully about how long you can miss the money. You can invest in the short term (up to five years), the medium-term (up to 10 or 15 years), or the long term. In the longer term, you have more time for recovery, which makes risky investments more attractive.

The amount

You also have to think about the amount of money or assets you want to invest in. For an investment in real estate, you need a larger starting capital than for an investment in a share. It is always important to invest only with money that you do not need in the coming period.

Preference & knowledge

Finally, it is important to choose a preferred investment product. Only invest in products that you understand sufficiently and conduct research before you put your money where your mouth is. That way you avoid disappointment.

Draw up your investment plan

It’s not wise to invest at random. Therefore, take a moment to examine your financial situation. How much money is coming in, and what buffer do you at least need for future expenses? That way, you immediately have a clear overview of the amount you can spare.You can then divide the money you want to invest over various investment products. Determine for which period you can put the money aside in any case. By planning your finances as if you were running a business, you will achieve better results in the long term.

Sustainable investment

More and more people find it important to also invest sustainably. By investing in a better planet and future, you can influence the faith of our planet. In many countries you receive tax benefits when you invest in sustainable projects.

Frequently Asked Questions about investing

In the last part of the article, we answer some frequently asked questions about investing.

What is investing?

Investing is sacrificing money, time, or manpower to achieve a long-term goal. Nowadays, we mainly talk about investing money to achieve a positive return. Investing is usually focused on the long term.

Can anyone become an investor?

Yes, it is! As long as you are of age and have some money available, you can become an investor. Nowadays, you can invest from as little as $100 in all kinds of financial products. However, it is important to remain realistic. With a small amount, you will of course also achieve a small result.

Is it risky to invest money?

It is always risky to invest money. However, how risky differs greatly per investment product. For example, an investment in a government bond is much less risky than an investment in the Bitcoin. That’s why it’s important to investigate carefully what the risks are of the type of investment you’re considering. This way, you can select investment products that fit your risk appetite!

From what amount can you invest?

In theory, you can invest as little as $1. With $1, however, you will not achieve a high return. The minimum amount you can invest with differs per investment product. It is advisable to only start investing when you can miss a minimum of $100.

Investing in real estate

Investing in real estate can be very attractive. When you put money on a savings account you can be sure that you will lose money due to the low interest rates. At the same time, the housing market has always done well in the long run. This is not surprising when you consider that everyone needs a place to live. In this article you learn how you can benefit from investing in real estate.

Why should you invest in real estate?

Before we look at how you can invest in real estate, we discuss why it can be so attractive to invest in real estate. With a real estate investment you benefit from double returns and you can also apply leverage. Moreover, real estate is a good protection against inflation and with the growing rental market, there is a good chance that your investment will be worth more in the long term.

You receive a double return

The double return makes investing in real estate very interesting. The first way to make a profit with real estate is by selling it in the future against a higher price. In the long run, the prices of real estate rise. This is because the demand for homes is only increasing. If you sell the property at a later time, you will get a nice return on it.You will also receive a return in the form of rent. This allows you to achieve a good result in the short term with a real estate investment. You can use the rent to pay for the maintenance of the property and to pay the financing costs. If you make a good investment you will be able to make a profit every month after deducting all of these costs.Case Shiller houses prices

House prices rise over the long term

You can apply leverage

When you invest in real estate, you can make money with other people’s money. This is a rare option that can make it extremely attractive to invest in real estate. When you buy a house, you usually don’t invest the amount at once. You will have to borrow a large part of the amount from a bank.In many cases, you will borrow about 80% of the value of a property. This means that you only need to deposit 20% in the first instance. However, you will benefit from the full 100% increase in value, and you will also enjoy the rental income over the entire property. Certainly, with a low mortgage interest rate, you can use leverage to increase your return considerably as a result.The use of a lever is of course not entirely without risk. When the housing market is in a dip, you do have to keep paying the monthly costs. When you are unable to do so, you will be forced to sell the house at a lower price. You will then make a loss on your investment.Let’s explain the leverage effect using an example. The purchase price including costs is $200,000. In the first example, you only use your money and receive $10,000 in rental income on an annual basis. Your return then amounts to 5%.In the second example, you borrow 80% of the sum, so you only deposit $40,000 of the amount. However, the rental income is still $10,000. Your return then amounts to 25%. Of course, you still have to deduct the costs of financing, but chances are that they are lower than 25% on an annual basis. You can, therefore, achieve a higher return with a leverage.

Protection against inflation

Another advantage of investing in real estate is that it protects you against inflation. Inflation is the process by which the prices of products rise every year. This makes your money worth less and less. If you just leave your money in a savings account, the value of your assets decreases every year.By putting your money into real estate, you avoid the negative consequences of inflation. This is because house prices rise along with inflation. In this way, you protect yourself against money devaluation!inflation

The price level rises sharply over time

It’s relatively flexible

You’re 100% the owner of your real estate. Because of this, you can decide at any time to sell your house again. If you have a financial setback, you can also sell the house. However, you have to take into account that you might make a loss on your investment in this case. House prices rise in the long term, but can certainly fall in the short term.It is therefore important to invest for the long term. If you don’t, you can lose a lot of money with your real estate investment.

The rental market is growing

The demand for good rental properties is still rising. In large cities, there is a dire shortage of housing. When demand exceeds supply, prices rise. As a result, you can achieve a good return with a house. However, it is important to buy a house in a good location. That way you prevent your house from being vacant for a long time, which of course is not attractive.

How can you invest in real estate?

Now that you know why it can be attractive to invest in real estate, we’ll discuss the various methods you can apply to do so. There are several ways you can benefit from real estate: even with little money. You can buy shares (buy-shares), invest in a real estate fund (real-estate-fund), or of course, you can buy a real estate property (buy-real-estate) yourself.

Method 1: buying real estate shares

The first option you have is to buy shares of companies that invest in real estate. This option is accessible to everyone: even when you have little money. Nowadays, you can buy shares with as little as $100 using an online broker. Many providers do not charge any commissions, which makes it possible to achieve a good return. When you buy shares, you are not the owner of a real estate investment. It is therefore an indirect way to invest in real estate. It is important to check the company’s balance sheet so that you can be sure that the company will be able to meet its obligations in the future as well.Do you want to know more about buying shares? In our article on this topic you will learn everything you need to know before buying your first real estate share:

Method 2: a real estate fund

It is also possible to invest in real estate using a fund. A fund usually invests the assets of investors in various real estate projects. It is important to thoroughly investigate where the fund is active. Research if the projects seem solid. If the fund goes over, you can lose the full amount of your investment.A disadvantage of investing in a fund is that you cannot use leverage. The bank will not lend you money to invest in a fund. Your return will depend on the amount of money you can put in the fund.A good party to invest in real estate funds & shares is eToro. At eToro, you pay 0% commission on all stocks. Use the button below to open a free (demo) account with this provider:

Method 3: buying real estate property yourself

When you have the opportunity, it can be very attractive to buy real estate yourself. When you invest in real estate, you keep full control. There is then no other party who can make decisions on your behalf. You can also make use of leverage by making use of external financing.In the rest of this extensive real estate investment guide, we look at how you can make a nice return by buying a real estate object.investing in real estate

What types of real estate can you invest in?

There are an awful lot of different objects you can invest in. What are the options, and what should you pay attention to with these investment options? You can choose to invest in houses, commercial real estate, student rooms, holiday homes, building land, and garages.

Houses

Houses are best suited for the novice investor. A house can be a whole house but also an apartment. When you buy an apartment, you have a little less freedom. There is often an association of owners that has quite a bit of say in the ins and outs of the building. Nevertheless, an investment in an apartment can be a good option for the novice property investor.

Commercial real estate

You can also choose to invest in commercial real estate. These are, for example, offices or shops. The potential return on this type of property is often higher. At the same time, the risk is also much higher. The vacancy rate on commercial property is much higher and the results are more dependent on the economic climate. It is therefore important to know what you are doing before you buy commercial property.commercial real estate investment

Student rooms

In many cases, you can also split a house or apartment and rent it out to several students. Students are generally not the tidiest tenants: therefore, expect the necessary traces of use. Renting out student rooms also means more work. Students only stay for a short period of time, so you regularly have to draw up a new contract and find a new tenant. However, if you have several students in one residence, you can significantly increase the potential return on your investment.

Holiday home

You can also choose to invest in a holiday home. As a pure investment, however, this is often not the best option. The return on holiday homes is often quite low: especially in the low season, it is difficult to rent out the property. Moreover, you need to make arrangements to handle the flow to different, short-term tenants. Buying a holiday home is therefore only interesting if you want to make regular use of it yourself.

Building plot

You can also choose to invest in land or a building plot. However, this comes with a big disadvantage: empty land gives you no direct return. You can rent out a house or office building and thus immediately build up monthly cash flow. However, this does not apply to land. This way of investing is therefore more speculative. You buy land in the hope that it will be worth more in the future. If you are wealthy, you can use the land to develop something yourself, but that is not an option for most private investors.

Garages & parking spaces

By buying garages and parking spaces you can achieve a good return. The location is essential for this type of real estate investment. When you buy a parking space in a neighbourhood where you can park for free, you are not going to make much money.A disadvantage of investing in parking spaces is that you have to buy a lot to get a decent return. Each separate garage or parking space brings extra work with it. Governments are also trying to reduce the use of cars. Investing in a garage or parking lot is therefore not the safest option these days.invest parking space

What influences house prices?

Before you start investing in real estate, you must understand exactly how the real estate market works. The basis is simple: supply and demand determine the price of a house. When many more people are looking for a house, the price rises. Of course, this is a bit simplified. That’s why we would like to discuss the different factors that can influence the price of real estate.

The stock market climate & the economy

When people have a lot of confidence in the future, they are more willing to invest. When the economy is not doing well, you often see that people wait to buy a house. Because of this, you see that house prices do better in economically prosperous times.

The capacity to borrow

Most people don’t have a big bag of money at home which they can use to buy a house in one fell swoop. Therefore, they first have to go through the bank to borrow money. When it is relatively easy to borrow money, you see that more people can buy a house. As a result, demand increases, and house prices rise.Interest plays an important role in the capacity to borrow. When the mortgage interest rate is low, you can borrow a larger amount. This can cause house prices to rise further. When the interest rate rises sharply, you see that house prices fall.mortage interest over time

Interest rates have fallen sharply in recent years

Government policy

The government’s housing policy also plays an important role. If the government does not build enough new houses, the supply will not increase sufficiently. If demand increases, prices will rise. Local authorities also have a great deal of influence on house prices. When a certain neighbourhood becomes more popular due to new, more luxurious facilities, prices will rise.

What’s the best time to buy?

When you are a new real estate investor, it is best to invest in a property. I am a big fan of two- or three-room apartments. The return on this type of property is high, while the maintenance costs are relatively low.Houses are often not worth the effort. The surface area is larger and therefore the maintenance costs are much higher. At the same time, you have to maintain the entire house. With an apartment, this responsibility is usually shared with the other apartment owners.Buying a one-room apartment or studio is not recommended because people often only temporarily live in these housing types. At the same time, the return per square meter decreases when you buy a larger apartment. It is therefore better to buy two small apartments with a separate bedroom than one large apartment with several bedrooms.Finally, it is advisable not to go for luxury apartments. You often pay a hefty premium on this, while the extra return is negligible. Tenants are more likely to look at the location and are often unwilling to pay substantially more for a nice wooden floor. When you want to buy an apartment for rent, it is important to focus on the return.rent out apartment

Don’t buy a luxury apartment

What do you have to look out for when you buy an apartment?

When you decide to invest in an apartment, there are some things to take into account. In this section, we will discuss what you need to take into account. When you are going to buy a house, you should, in any case, take into account its location, layout and finishing of the details.

New construction or existing construction?

The advantage of new construction is that the house is entirely new and has no traces of use. In the beginning, the costs for maintenance will, therefore, be low. You often pay a premium for this. Investing in a newly constructed house is certainly not cheap!You pay less for existing buildings but can expect higher maintenance costs. At the end of the day, it does not matter whether you go for new or existing construction. In practice, you can achieve a good return with both investment options.

Existing rental contract

In some cases, a house is already rented out with an existing tenant. This can be advantageous. To find a good tenant, you often have to incur costs. However, it is important to thoroughly investigate whether the tenant pays market rent. If this is not the case, you may be stuck with low rent. It is also important to check that the tenant has not caused any problems.

Pay attention to the common areas

It is important to examine the common areas well. When you buy an apartment, you want to avoid losing a lot of money due to high maintenance costs. You can use your intuition for this immediately when you come in. See what the corridors of the apartment look like. Is everything worn out and is it a mess? Then the current occupants probably don’t care what happens to the building. Of course, this is not good for the value of your real estate investment in the long term.It is also important to examine the financial situation of the association of owners. Examine the balance sheets and check whether active maintenance plans have been drawn up. Make sure there is sufficient cash in hand. If this is not the case, you will suddenly have to pay a lot of money for extra maintenance in the future. Of course, you want to avoid that!

Location

The most important thing with real estate is its location. One neighbourhood is not the other neighbourhood. People like to live close to the centre of a town or village. The house prices are therefore higher here. In problem neighbourhoods, house prices can be considerably lower. It can also be a lot harder to find a good tenant there.Therefore, first investigate and determine which neighbourhoods are popular. You can also do some research on rental websites to see in which neighbourhood houses can be rented out quickly and easily. As soon as you have a good idea of what attractive locations are, you can start looking for an investment property in these neighbourhoods.property investment

You can easily research popular neighbourhoods on the internet

The layout

It is also important to study the layout of the apartment. Try to empathize with the audience that is going to rent the apartment. Are you aiming for seniors? Then homes with lots of stairs and high thresholds are probably not very suitable. Therefore, do not look at the house from your preferences, but from the preference of the potential tenant.There are certain things that the majority of people prefer. Practically, everyone likes many light sources and a practical layout. People don’t like to live in a dark cave or a house with all kinds of space that can’t be used properly. Therefore, be sure to take these factors into account when purchasing a home.

The finishing touch

A tenant always looks at the finish of the bathroom and kitchen. Therefore, make sure that these areas are neatly maintained. They do not have to be very luxurious, but they mustn’t be covered in mould. On the floor, you can place a simple but good-looking material such as laminate. An expensive parquet only causes high maintenance costs and of course, as a landlord, you won’t get anything out of it.

Rent with or without furniture?

Especially in big cities, it can be very attractive to rent out a house with furniture. When you rent out a house with furniture, you can quickly collect $100 extra rent. If you buy simple furniture with a price of $2,000, you will achieve a return of 60% on an annual basis on this amount! Buying simple but solid furniture can give you a good extra return. In many cases, it is even possible to take over the furniture of the previous owner when you buy an apartment.Not all tenants prefer a house that is furnished. On the contrary, some tenants want to have the freedom to arrange their house as they see fit.

What about the cost?

Of course, there are costs involved in owning property. In this section of the real estate manual, we will discuss the different costs you need to take into account. Among other things, you should take into account the purchase costs, renting costs and maintenance costs.

The purchase costs

When you buy a house, you pay more than the asking price alone. You also pay the purchase costs. The purchase costs consist of any taxes and the notary fees for drawing up the purchase agreement and deed of delivery. When you take out a mortgage, you also pay advice costs to the mortgage lender.

Costs for renting out

You can choose to take care of the rental yourself. You will then have to look for a renter yourself, and you will have to draw up all the contracts yourself. If you have no experience, this is a risky option. Ask yourself if you know how to recognize a good tenant. Do you know what a tenant’s rights are and do you know what to do when a tenant does not pay the rent?For most people, it is wise to use a real estate agent to find a landlord. You usually pay one month’s rent for this. Especially when the tenant stays for a longer period, the costs are relatively limited. You will receive a lot of extra security by having a professional take this step.When checking out, a professional will also check whether any unreasonable damage has been caused by the tenant. If this is the case, you can withhold the deposit or oblige the tenant to repair the damage. Even if the tenant refuses to pay the rent, an estate agent can help you follow the correct procedures.

Maintenance costs

The apartment will also need to be maintained. For example, the heating or the boiler may break down. It is best to set aside one month’s rent for this every year. That way you can be sure that you always have enough money from which you can pay these kinds of costs.You are responsible for keeping the apartment habitable. When a tap leak or the heating breaks down, the tenant will call you, and you need to fix this quickly. This can be very inconvenient when you are just enjoying a well-deserved holiday. That’s why I decided to outsource the technical management myself.A good rate for this is 2-4% of the rental price. For this percentage, the other party ensures that when maintenance has to be carried out, it is all arranged. This way you can enjoy the return on your real estate investment without worries.

How do you arrange the funding?

Most investors will not pay the house in cash. It is therefore important that you understand how you can arrange the financing of an investment property. In some cases, you can use the excess value of your current home. If this is not the case, you can choose to take out an investment mortgage.

Using excess value

When your house has increased in value or when you have already paid off quite a bit on your home, you can choose to use your surplus value for your financing. When your income is high enough, it is fairly easy to make use of it.If you want to use the excess value, you have to contact the bank. In some cases, you will have to appraise your home at your expense to prove that there is indeed an excess value. You can then raise the mortgage on your home and use this money to purchase a second home.mortage real estate investment

Take out an investment mortgage

You can also choose to purchase a second home with an investment mortgage. With an investment mortgage, your income is not taken into account. Only the estimated rental income from the property is taken into account.When you take out an investment mortgage, you will have to contribute quite a bit of your money. In most cases, you will have to contribute 10 to 20 percent of the value of the property in let condition. You also have to take into account that the interest rate on an investment mortgage is considerably higher than the interest rate on a normal mortgage. At the same time, the interest-free periods are a lot shorter.

A combination of both

You can also choose to use both options. For example, you can use your excess value to bring in the required 10 to 20 percent of your deposit. Then you can finance the rest of the extra house with the investment mortgage.You can also choose this option if you can finance an entire house with the surplus-value. In this way, you can buy several properties instead of one. In this way, you can immediately take maximum advantage of the previously described leverage effect. When you do this, you have to be extra careful: even in bad times, you have to be able to finance the costs. In this case, you therefore need a bigger financial buffer.

The risks of investing in real estate

An investment in real estate is not without risk. When you invest in real estate, you have to take the necessary risks into account. For example, there is a risk that house prices will fall sharply. You can also, lose money when your house is empty. Tenants can also cause problems: they can cause damage to your home or refuse to pay the rent.

Falling house prices

Especially in the short term, house prices may fall. During an economic crisis, prices can sometimes drop as much as 10% or more. Therefore, always invest in real estate with a long-term vision. Only buy a house if you plan to own it for at least ten years. During the dips, you still benefit from a positive return by letting the property.

Vacancy

Vacancy costs money. After all, you do pay your financing costs, but temporarily no rent comes in. When the rental market is not doing well, it is wiser to lower the rent a little. It is better to rent out a house at a lower price than to have no income at all from your real estate.

Damage

Tenants can damage your property. Make sure you have a proper check-in and check-out procedure so that you can hold the tenant liable. If you ask for a deposit, you can at least use it to repair any damage.

Non-payment

A tenant can suddenly stop paying rent. You can use the deposit for this as well. You have to send several reminders before you can start evicting a tenant. A default can cost you just a few month’s rent.

Unexpected expenses

You may face unexpected costs. For example, the boiler may break down. Therefore, always provide a buffer so that you can absorb these kinds of unexpected expenses.

7 golden tips for the real estate investor

You now know enough to buy your first investment property. We would like to close the article with nine golden tips that can help you with your first real estate investment.

Don’t wait too long

Many people wait and wait before buying their first home. That’s a shame! As long as you get an immediately positive return through your rental income, a real estate investment is a good choice. This type of investment is less risky than an investment in shares and ensures that your money is not decreasing in value every day. Let your money work for you instead of always working for your money!

Note the location

Location is key! Preferably buy an apartment in a central, easily accessible location. When the shops are nearby, the appeal of the property increases. It is also important that the apartment is easily accessible by public transport.

Calculate a realistic return

Many people make calculations with an overly positive return. Real estate agents are happy to tell you fairy tales to sell their homes quickly. It is important to take all additional, possible costs into account. Think for example of the costs of vacancy or future higher costs due to a higher interest rate. Rather calculate with a too low return than with a too high one.

Screen your tenants

Don’t take on the first tenant that applies blindly. This person is going to live in your house for a longer period and you can’t just throw him out. Tenants are protected by all kinds of laws and when you choose someone who doesn’t pay rent or demolishes the place, your return on investment can drop dramatically. In many cases, it is, therefore, advisable to use an estate agent when selecting a tenant.

Buy a normal property

Don’t go for a fancy loft or an apartment with an exciting layout. A standard property often provides the best return. Luxurious and original layouts may be nice when you live there yourself, but in practice they are not very practical. Always look at a property with the right cap on that of the investor and not that of the homeowner.

Ask for deposit

Always ask for a deposit and take clear pictures before the apartment is rented out. This way it is immediately clear after the end of the rental period whether the tenant has followed the rules. If this is not the case, you can use the deposit to compensate for the damage. You can also use the deposit if the tenant refuses to pay.

Go for a positive cash flow

Always buy properties that bring money directly into your pockets. It is not wise to buy a house that costs you money from day one. You are then speculating on a rising price. When house prices drop for years, you are stuck with a bad investment. That is why you should always only invest in houses that generate positive cash flow.

Love the deal

A good deal doesn’t come out of the blue. Spend time and visit dozens of homes to get an idea of the market. Then make an offer on a property that will give you a positive return. Doesn’t it work? Then leave the deal. Avoid falling in love with the property. What you have to do is declare your love for the deal. Do the numbers work? Then it’s an attractive option.

Don’t be afraid to negotiate

Many people spend time collecting coupons for toilet paper in the supermarket but forget to negotiate when they buy a house of a few tons. That’s a waste! So, negotiate for the conditions. Try to lower the price or try to get extras. For example, I like to bid on the house including the furniture, which will save you a lot of work in the end.

My own experience with real estate

I have also just started to actively invest in real estate. I used the surplus-value in my home to buy a small apartment for rent in Amsterdam. Due to the low-interest rate, the rental income of the property will pay off the mortgage. I have fixed the interest for ten years so that I can be sure of a positive cash flow for at least 10 years. After 10 years 1/3 of the property loan has been redeemed, so I always have the opportunity to sell it again.Next year I plan to buy another house. In the end, it is my goal to buy on average one new home per year. That way I will slowly build up a nice second income. However, this form of investment is very capital-intensive: so it remains to be seen whether I will be able to build up enough equity to borrow the money.

Make money on the stock market

There are three ways in which people make a lot of money and get rich: by setting up a business, by investing in real estate and by trading shares on the stock market. In this article we look at how you can make money on the stock market by buying undervalued shares and by selling overvalued shares.

How can you make money on the stock market?

You can make money in the short term by actively trading shares. You then speculate on price rises and price falls. If you have more patience, you can also buy shares on the stock market for the long term. Let’s see how both methods work.

Active trading on the stock exchange

First, we discuss the method you can use to generate a good income in the short term. You can do this by actively trading in shares by using an online broker. When you actively trade in the prices of shares, you buy or sell them and hold them for a few hours to days.Active trading allows you to earn a considerable amount in the short term by taking advantage of price changes. When you go long (buy) you earn money when the price rises and by going short (sell) you earn money as soon as the price drops. By responding to the market developments, you can take advantage of the price fluctuations and make good money.Do you want to try active trading in shares completely without risk? Then open a free demo with a broker and find out if you can make a profit from buying and selling shares. And remember: investing always involves risks!

Investing for the long term

It is also possible to buy shares for the long term. When you buy shares physically,  you can only benefit from a rising price. Actually, buying and holding shares is therefore something people do to achieve a nice profit over a period of several years.An advantage of this way of investing is the fact that you also receive dividends on your shares. A dividend is a form of profit sharing. The board of the company in which you invest determines how much dividend you are entitled to. The amount you receive often depends on the economic situation and the company results.When you start investing on the stock exchange in the long term, the transaction costs are critical. Transaction costs can significantly reduce your return. It is therefore advisable to compare the different brokers. In the article ‘buying shares’ you can discover the best brokers to invest with:

How does the stock market work?

Before you start trading, you must understand how the stock market  works. In the past, the stock market was still a location where people were shouting at each other to make the best deals. Nowadays, thankfully, all stock exchanges are online. You do not have to shout any more to get the best price. Via the Internet, the stock prices are updated rapidly so that you can always purchase the shares at the right price.

The price of a share is created by computer calculations. Smart computers track how many people want to buy and sell a share at any given time. When the demand for shares increases, the price automatically increases. When the number of buyers decrease, the price again drops somewhat. As son as you start trading on the stock exchange, you have to take the interaction between supply and demand into account.You gain access to the stock market by opening an account with a broker. A broker is a party that can buy and sell certain shares on your behalf.trading stock market

What is the best strategy for trading on the stock market?

If you really want to make serious money on the stock market, it is best to combine both methods. In the short to medium term, you can make money by trading quickly on the stock market. With the income, you generate by trading quickly on the stock market, you can pay the bills, go on holidays, and buy nice clothes.

When you invest the money that remains in valuable, strong stocks, you generate a second passive income stream. By holding the shares you can create a fixed flow of dividends.

It takes money to make money

The stock market has been on the rise in recent years. This is mainly due to low-interest rates. As a result, it is not attractive for savers to keep their money in a bank account. More and more people know how to find their way to the stock market. All this ensures that the stock market has a lot of space to grow.Investing money in the stock market is therefore wise. When you leave the money in your savings account, your assets slowly decrease. However, it is important to invest in a smart way. Make sure you have a buffer for unexpected expenses. That way you increase your chance of making money on the stock market.

6 tips for better results on the stock market

Do you want to achieve better results with your stock market trading? With these 6 tips, you will know where to go to make more money from your investment activities.

Tip 1: Open an account with a broker

How are you going to learn to invest without opening an account with a broker? The answer is simple… You will not! It is therefore advisable to open an account with a good broker. That way, you have direct access to the exchange, and you can discover what works best for you. Use the button below to directly compare the best brokers:

Tip 2: read books

There are quite a few good books about investing on the stock market. You can learn a lot from other investors, and it is definitely advisable to delve into the strategies of other smart traders and investors. Great books include Market Wizards  and The Intelligent Investor.

Tip 3: read articles

Moreover, on the internet you can find many interesting articles about stock exchange trading. On trading.info, for example, you will find several informative articles that can help you achieve better results on the stock market.

Tip 4: Follow successful investors

I also follow several successful investors myself. Analyse their behaviour and discover the how and why behind their success yourself. By examining at what the big giants invest in, you can quickly achieve better results. I am a big fan of Warren Buffett. Do you want to know what his secrets are? Read this article about the investment hero:

Tip 5: trade with the market

Sometimes I talk to people who say they want to be a successful investor. I then ask them how much time they spend monitoring stock prices. When they say zero hours, I laugh. How are you going to develop a feeling with the market when you are not even watching them? Even a simple website like CNBC can keep you up to date with the latest news.

Tip 6: Buy your first share

There are plenty of  ‘investors’ who are stuck in the dream phase. They philosophize about how beautiful and smart it would be to make money on the stock market. Ten years later, the stock market has risen sharply, and they still have not taken any action. Buying your first share can therefore be a good, activating step.

Making money on the stock market requires insight

Many people lose money investing. You therefore need sufficient insight to achieve good results on the stock market. Your strategy also depends on whether you focus on the short or long-term.

Short term

Please note that making money on the stock market requires significant insight. For example, making money in the short term works differently than making money in the long term. In the short term, all you need is volatility (movement on the stock market), as you can make money in both rising and falling markets.Do you want to learn how you make money on the stock market by responding to short-term trends? In the day trader guide you can read everything you need to know to become a successful day trader. When you want to make money on the stock market, it is important to perform good analyses. In the article on technical analysis you will learn how this works.People who actively trade often carry out technical analyses. With technical analyses, you try to recognize patterns in a graph. You can then make smart decisions and respond to this. Do you want to know how this works? Read our article on technical analysis:

Long term

When you start trading on the stock market with a long-term view, you will have to make your decisions differently. In that case, you buy shares for the long term, so it must be the right decision. Verify the profitability, research the sector, and make predictions for the future, to determine if the stock is worth its price.The longer your investment horizon, the more important the fundamental figures behind the company are. In our fundamental analysis guide you will learn everything you need to know.

Control your emotions

When you want to make money from investing, you need to control your emotions. The difference between a professional and a starting stock exchange trader is not about skills. No, the biggest difference is usually the control of emotions. If you want to be successful trading, you will have to keep your emotions under control as much as possible. Do you want to know more about the role of emotions on investments? Read our article on emotions and investing:

Invest safer with these 8 tips!

Investing tends to yield more than saving. However, it is important that you invest safely! There are stories aplenty of people who have lost a fortune because they went into business with the wrong party. But how can you make sure you invest safely? With these eight tips, you can be sure that you will not be the next investor to lose all their money. At the end of the article we will also discuss where you can invest safely.

Safe investing tip 1: use your wits

Always remember that investing is a risky activity. Parties who claim that you can invest without risk always lie. There are many charming sellers who try to scam unsuspecting investors.  When you are encouraged to buy a specific share while on the phone, you can assume it is a scam. In practice brokers will never give direct stock buying advice.As a rule, you can assume that any provider who approaches you cannot be trusted until they prove otherwise. You can recognize reliable parties by checking whether they are regulated by an official institution.Safe investing boiling room

Do not become the next victim of the ‘wolf of the Wall Street’

Tip 2: check credentials

When you want to invest safely, you need a reliable broker. You can verify whether the broker has the correct licence.When a broker is regulated, this is a safety signal. However, do not assume that this party is reliable just because the credentials are correct. Financial regulators also make mistakes. Therefore, make sure that the provider is recommended by other sites and research if they provide a high-quality customer service.

Tip 3: choose safe products

Transparency is important when investing! When there is talk of a ‘guaranteed return’, then you know it is a scam. There is no such thing! It is important to clearly identify the risks associated with a product. In addition, remember that there is a clear link between risk and return. When you can obtain a potential higher return, the risks are also higher.Of course, an investment in a stable share is a lot safer than an investment in a holiday home in Cuba.

Tip 4: understand the product

Ignorance is dangerous! So, carefully study the product before you invest in it. Different securities have different pros and cons. For example, an investment in a share works completely differently from an investment in real estate or CFDs. In the article what can you invest in you can read more about the different investment products.In any case, remember that the parties behind financial products usually want to make money. So, when the bank launches a new fancy financial product, the bank does not do so to help you. No, the bank wants to make money by selling the product. Therefore, it is important to study whether the product will really help you.

Tip 5: diversifying your investments increase safety

Do not invest all your money in the same financial product! It is important to spread your investments well. Investing in two different American shares is not a good example of diversification. When you want to play it safe, you need to spread your money across different products, sectors and regions.Diversification ensures that a dip in one market can be absorbed by another market. For example, you can put one part of your assets into shares and another part in bonds. Then you can buy shares in different sectors and countries. When Brazil’s stock market crashes, your U.S. bonds may be thriving. More diversification therefore ensures more safety!spread investments safety

Spreading your investments safely, that is the road to success!

Tip 6: safe trading is controlling your emotions

Safe investing is not just understanding the provider and the product. No, you have to understand yourself, too. When you start trading, emotions play an important role. An investor who wants to invest safely will have to draw up a good plan that minimizes the influence of emotions. In the article the impact of emotions on investing you can read how to do this.

Tip 7: accept uncertainty

That past results are no guarantee for the future is a rule for a reason. You are not investing safely when you assume a guaranteed profit. You must accept the uncertainty of investments. That way you make sure you have a plan B and that you absorb losses through, for example, a stop loss.Also, make sure the results are valid. Of course, it can be attractive for funds and companies to paint returns in a better light than they are. When you want to invest safely it is important to double-check all the numbers.

Tip 8: pay attention to the cost

Safe investing also means keeping an eye on costs. An increased cost percentage of one percent can quickly reduce the return by tens of thousands over the long run. It is therefore important to compare the investment costs and to read the fine print carefully. Many brokers have hidden costs that can significantly reduce returns.

Trade safely with reliable brokers

Many people wonder which brokers they can trade with safely. In the rest of this article, we will discuss how safe it is to trade with brokers like Plus500  and eToro.

How safe is trading?

Trading is relatively safe if you keep our safety tips in mind. When you trade with a demo account,  you can try out the possibilities without risk. Once you trade with real money at Plus500 or eToro, you can never lose more than you deposit, and this usually only happens when you make a terrible decision. In this article we review the security of trading with Plus500 and eToro.

  • You cannot lose more than your deposit!
  • Your money is  stored in separate accounts.
  • The brokers are regulated by financial regulators.
Are you ready to start trading? Open a free demo account with a broker!

Can I lose more than I invest?

Many people wonder if they can lose more than they deposit when they start investing. Fortunately, this is usually not the case. When you no longer have enough money available in your account you get a so-called margin call. In the case of a margin call, you will have the chance to deposit money. If you do not deposit additional funds, your trading positions will automatically close to prevent you from losing any more money.

Brokers use margin calls to protect you as a customer. Because of the margin call, you can never lose more than you deposit on your account. Even if the price moves further in the wrong direction, you are not responsible for the additional costs. When this happens, the broker will take a loss and the additional costs will not be passed on.Tip: Check carefully if your broker reimburses a negative balance. For example, with Plus500 and eToro, you can never overdraw as a private investor.

Is Plus500 reliable?

Plus500 is a reliable broker. This is reflected, among other things, by their licence from the Financial Conduct Authority, the UK’s financial markets regulator. In addition, Plus500 customers’ money is held in separate accounts, so you can be sure that the funds are not used for speculative purposes. In the article on the reliability of Plus500  we discuss the reliability of Plus500.

14 tips that help you invest better

As a novice investor there is, of course, so much to learn. Therefore, it is especially important to gather knowledge and insight so that the investment process runs smoothly. With these 14 tips you can instantly achieve better trading results than 80% of the other novice investors!

Some essential tips before you start investing

  • Sign up with a broker and try out investing with a free demo!
  • Determine which investment products suit you best.
  • Spread your risks: do not put all your money in one trading position!
  • The most important tip: practice, practice, and practice again!

Investing tip 1: take advantage of compound interest

If you want to achieve a good investment result, it is wise to take advantage of compound interest as much as possible. Compound interest is also known as interest on interest. When you achieve returns and reinvest this return, you will also receive returns on this return. This quickly piles up.In the short term, the effect of 0.5 percent interest on an additional 5 percent may seem limited. However, long-term compound interest means that you are left with a much larger amount of capital. In the chart below, you can clearly see that compound interest makes your results grow exponentially. Therefore, reinvest some of the profits you receive!compound interest tip investing

Tip 2: practice extensively first

Do not assume you already know everything! Even investment gurus like Warren Buffett and Nassim Taleb continued to learn all their lives. Consequently, read plenty of books. Interesting books to include in your reading list are Trading in the Zone by Mark Douglas and The Way of the Turtle by Curtis M. Faith.Furthermore, brokers offer demo accounts that allow you to try out the possibilities. An important investing tip is to first test the possibilities extensively with a demo. This way, you may discover which way of investing suits you best.Click here to open a free demo account with a broker >>

Tip 3: Design a trading plan

It is very difficult to achieve successful investment results when you do not have an investment plan. Therefore, create a broad financial plan in which you indicate all your goals. After you determined your goals, you can add your sources of income and expenses. By adding your income and expenses, you can determine how much money you can set aside for investments per month.Making investing a part of your financial plan is probably the most important tip I can give you. By setting aside some money every month, you build up a large amount of capital in the long run.

Trading tip 4: start investing more and more

When you are young, you often spend your money on things other than investing. Whether it is beer, a home, or your car maintenance. As you get older, your income grows, giving you more to spend. For that reason, financial adviser Alex Whitehouse advices to increase your investing by one percentage point of your income each year. This way, the amount you invest continues to increase!

Tip 5: monitor the share price

If you invest, it is particularly important to  keep a close eye on the current stock prices.  For successful investing, you need to be able to monitor the prices on the current stock exchange. Thus, you can react to new developments and increase the chance of a high return. Make sure you are aware of stock market developments,  so that you can react quickly and accurately to changes.
  • Keep track of the current stock prices!
  • Look for recurring patterns in the market.
  • Identify the values between which the rate moves.
  • Place a stop loss on these values: limit your loss.
  • Through technical analysis, you can learn to recognize patterns better.
trend recognition investing tip

It is always wise to invest with the trend

Tip 6: Do not forget debts

When you start investing, it is important to think about your debts as well. If you have an ongoing debt with an interest rate of eight percent, it might be wiser to repay this debt first. That way, you reduce your costs, leaving more money for investments in the long run.

Tip for investing 7: protect yourself from inflation

Another important investment tip is that it is important to protect yourself from inflation. Under the influence of inflation, your savings are becoming less and less valuable. You can protect yourself from this through smart investing. For example, by buying stocks, commodities  and real estate, you protect your assets as much as possible against inflation.If you are truly looking for a safe haven, gold can also be an interesting option. With gold, you protect your portfolio from inflation and from a disappointing economy. It is always smart to diversify your invests so that you achieve good investment results even in economically bad times.investing in gold inflation

Tip 8: Research the future of a company

Always research a company thoroughly before you buy this company’s shares. Also study the potential of the  sector of which the company is a part. A recession can temporarily cause a certain sector to perform poorly.By executing your research in advance, you can avoid losing money on your investments later. Also investigate whether the company has plans in the near future.  Is the company planning to introduce new products? This might influence the results of the company positively.
  • View financial data & results and study the future perspective.
  • Compare the company’s performance with other companies in the same sector.
  • In the article fundamental analysis you can read how to investigate a company.

Tip 9: spread your investments as much as possible

Do you want to achieve good investment results? Then it is wise to diversify as much as possible! Try to spread your investments across different securities. You can for example buy shares, real estate, bonds and index funds altogether. Alternatively, you can combine these with more risky investment products such as  options and  CFDs.It is also important to spread your investments over time. For example, it is much smarter to deposit an amount once a month than once every five years. By investing money every month, you prevent yourself from going all-in at a bad time. By diversifying your trading activities, you ensure a more stable and positive investment result.

Tip 10: Invest only in things you understand

It is not wise to invest in things you do not understand at all. If you decide to do so, you risk losing big amounts of money. Good examples of this are the internet bubble of 2000 or the more recent cryptocurrencies crash. When everyone is talking about something, it is often unwise to invest in it.Therefore, make sure you understand both the financial product and the specific market. Make sure you keep learning, so you stay up to date on the latest developments. The best investment results are achieved by people who stay curious.internet bubble 2001

Above you can see the internet bubble of 2000

Investing tip 11: be realistic and discerning

A simple but important tip: do not be too naïve. When a party promises you something too good to be true, it often is. Do not trust a seller on his or her word but find out which party is behind an investment product. Financial regulators still regularly have to deal with people who are scammed by a financial party.Also be realistic about your performance. It is unrealistic to expect to see a return of several dozen percent every year. Good investing periods will be interspersed by bad periods. By remaining realistic and discerning, you improve your investment results. Learn more about safe investing here.

Tip 12: look for companies with growth potential

When investing, it seems very attractive to look for companies that have a high profit/price  ratio. However, the growth of a company depends on potential new products, which can make the company more profitable in the  future. So, always look closely at the  potential  of an industry and the development of a  company.
  • Review the annual report and analyse their plans for the company’s future.
  • Study the future products and analyse if it is something you, yourself, would like.

Tip 13: pay attention to transaction fees

Many people lose sight of transaction costs when they invest. Still, a 0.5 percent difference in transaction costs can make a huge difference in the long run!  Cheap investing  is now possible thanks to the arrival of online brokers. Therefore, think about what you want to invest in and decide which broker is best for you. In the article about investing costs, you can read more about the exact cost of investing.

Tip 14: have a plan

The latest investing tip for achieving better investment results, is to make sure you have a solid plan. Set clear rules that indicate when you buy and sell certain securities. By doing so, you can avoid the negative influence of emotions on your investments as much as possible. Successful investors know better than anyone how important it is to invest as rationally as possible.

Smart investing: learn to trade smarter

Anyone can invest, but can everyone trade smartly? In this article we look at how you  can  invest smarter and how you can get a better return on your investments.  By following the tips in this guide, you will get the best results from your trades: even when you have little money left to invest.

When is it smart to invest?

The answer to this question is surprisingly simple: today! It is much more expensive not to invest in the long term. Historically, you achieve a higher return on investments in shares than on your savings. On average, the annual return on shares is around 7 percent, while the return on your savings is now negative.

Do you have an amount of money every month that you do not immediately need? Then it may be interesting to invest with this money. It is important to do this in a smart way. In this article, we discuss the 10 basic rules for the smart trader.

Invest periodically: why is it so powerful?

Before we dive into the 10 basic rules for the smart investor, we will show why is wise to invest now. If you invest an equal amount periodically and invest it repeatedly, you can build up a huge return over a longer period. Let us say you invest $1000 a year at a return of 7%, then you have:

  • $14,783 over the course of 10 years.
  • $43,865 over the course of 20 years.
  • $101,073 over the course of 30 years.
As you can see, your money is increasing much faster than the amounts you put in. In 10 years you achieve a return of $4,783, while in 30 years you have achieved more than $70,000 in returns. The time period is three times longer, but your return is more than 14 times higher. But how did this happen?This is due to the principle of exponential growth. Einstein did not call exponential interest the eighth wonder of the world for nothing. When you start with an investment of $1000 and you reinvest your return, you will receive 7 percent over the next year over the $1,000, but also on the return of $7. If you stick to this year after year, the amount you own can grow enormously. For example, after 60 years, with a monthly deposit of $1,000, you would already own $870,466.Smart trading can therefore make you a lot of money. If you put enough aside, anyone can eventually become a millionaire. However, this is not always possible. Let us see how you make sure you achieve the results of a smart investor as well!smart investing tips

Rule 1: invest cheaply

Many people underestimate the importance of trading cost. They are smart because they invest, but at the same time unwise by doing so with an expensive broker. It is possible to invest at your bank. This is unwise in almost all cases. Your bank charges a high percentage of costs over each transaction. They can do this because they know that many people are naturally quite lazy. People who have already opened a bank account when they were young are now opening an investment account with that bank.On paper, a small cost difference of 0.5% seems limited. However, this can add up considerably in the long run. If you invest €1,000 monthly over a 30-year period at a return of 7%, you get a positive result of $101,073. A cost percentage of 0.5% brings the return down to 6.5%. In this case, your final result is $91,989.23.A cost percentage of 0.5% ensures that you end up getting 10% less return! Fortunately, there are plenty of cheap and high-quality brokers where you can invest at low cost. Some providers even offer trading without any commissions. Do you want to know where you can invest the cheapest? Read our article on cheap investing and discover how you can save money today:

Rule 2: Spread your chances

When you go to the casino for an evening, you normally do not put your full amount directly on red. The evening could just be over soon. Still, many first-time investors do bet all their money on one colour when they start investing. They love a company and put all their money into that business. That’s a shame! When the company is not doing well, you immediately lose your entire deposit.Smart traders therefore spread their investments sufficiently across different investment products  and  regions. Depending on your risk appetite, you may choose to diversify your investments between shares and bonds. By diversifying, you can achieve good results within any economic climate. If you want to get a good result in the short term, you can decide to put some of your money into derivatives.It is also important to spread your investments sufficiently across different regions. In the past, there were certain regions that performed poorly for a longer period of time. A good example of this is Japan. For more than 20 years, this economy has suffered from sharp price falls. An investment in this region would therefore have underperformed.If you do not fully spread your chances, you are more likely to be gambling. Therefore, be a smart investor and spread your chances. In the end, it is better to achieve a lower but more stable return. That way you have more certainty that your investments will work out well.Japanese growth

The development of the Japanese economy over time

Rule 3: Do not listen to nonsense

Many people decide to avoid investing based on nonsense. They have the wrong mindset and on that basis they decide that it is not wise to invest. For example, many people believe that the stock market is only accessible to the rich. This is absolutely not true. Even with a small amount, you can achieve good results these days. In our article investing with little money  you can read exactly how to do this.Yet, other people believe that stocks are only for experts and that you need special training. This, too, is total nonsense. Nowadays, you can buy or sell a share via the Internet within minutes. If you don’t have enough knowledge, you can always choose to invest in a fund. In this way you still benefit from the developments on the stock exchange without having to study them yourself.Other people believe that trading on the stock market is no longer interesting. All the benefits would have already been achieved or the economy will only decline in the future. Again, this is a toxic mindset that will certainly not help you as an investor. Over a longer period of time, stock prices have only risen and by not stepping in you are selling yourself short. However, it is important to do this in a smart way.Do you want to join the stock market in a smart way? Then it is best to do this by boarding periodically. No one knows if the stock market is going to collapse tomorrow or if it will continue to rise for years to come. By periodically depositing a fixed amount, you prevent yourself from getting in at the wrong time. This makes it possible to benefit from the average growth of the stock market which has only risen over a period of 100 years.SP 500 shares stock price

Over the long term, stock prices have always done well

Rule 4: invest according to a plan

The smart investor, always invests according to a plan. Fortunately, this does not have to be a complicated plan with hundreds of pages of text. However, it is important to make some things clear to yourself. It is for example important to set a clear goal.  If you want to have a nice pension in 40 years, you invest differently than if you want to achieve a substantial return in the short term.In addition, determine what your risk appetite is. When you do not need the money directly, you can take more risks. Are you about to retire? Then it’s probably smarter to limit your risks a little more. Based on the time you have and the risks you want to take, you can decide which investment products you want to invest in.Next, it is important to also develop a clear entry & exit strategy. For example, do you only trade in shares when the price is favourable or do you step in periodically? And do you sometimes take your winnings or do you hold the shares until the end of days? By thinking carefully about your plan, you prevent yourself from acting out too much out of emotions. A smart investor is a rational investor!

Rule 5: Embrace risks

Some investors make the mistake of avoiding risk. However, the savvy investor understands that you will not receive any reward without risks. As an investor, you are paid to take risks. When you avoid risks, your return is also a lot lower. If you want to invest wisely, you will have to take sensible risks.The extent to which you should take risks depends very much on the time horizon of your investment plan. When you start investing at a young age, you can take more risks. When the market is bad, for a while you have plenty of time to wait for recovery. Many investment experts therefore advise traders to invest more in bonds as they age.Personally, I am not a big fan of bonds in the current climate. Government bond yields are often zero or even negative. Instead, you could invest in more stable stocks that periodically pay a fixed dividend. Companies that have a stable income often pay out a portion of the profits to shareholders.If you do not like the idea of embracing risk, it might be wiser to stay away from the stock market. The biggest mistake you can make is to run away from risk. Sensible risks pay off!smart trading risks

Rule 6: Be prepared for bad times

It is unrealistic to expect stock prices to rise indefinitely. It is therefore important to prepare for potentially bad times. On average, good and bad economic periods alternate every 7 years. It is therefore important to take this into account as a smart investor.In any case, smart traders ensure that they can always benefit from their investments. You do this by not stepping in on top. Since we can never determine with certainty what the highest stock price will be, we have to apply dollar-cost averaging. That way you will sometimes buy shares too expensive. However, this does not matter, as you can then buy the shares much cheaper again later.The smart investor ensures that he or she also benefits from bad times. Churchill understood this well and famously said ‘never let a good crisis go to waste’. There are several investment products that make it possible to take advantage of falling prices.You have the option to take a short position on a share. For this, you can use derivatives such as options and CFDs. With a short position, you earn money when the share price drops. Do you want to know how this works? In our article on about short selling you can read everything you need to know to take advantage of falling markets!benefit bad times

Rule 7: fear is a bad counsellor

Emotions play an important role in making decisions. In fact, research has shown that emotions are essential for making decisions. If you would not experience emotions because of brain damage, you could not make any decisions. However, it is important to be aware of the influence your emotions have on your investment performance.Smart traders are rarely guided by fear. When the stock exchanges turn blood-red, it’s interesting to buy shares. Anyone can buy a stock when it rises and rises, but only sensible investors can buy it after a crash.We all have a born tendency to avoid risk. This fear was very useful in prehistoric times. In those times there was danger everywhere. It would have been better to run away to many times than to be grabbed by a sabre-toothed tiger. Fortunately, there are no more dangerous tigers lurking in today’s society.That fear often causes us to make decisions that do not work out well at all. We cut off profitable trading positions because we are afraid of losing our profits. At the same time, loss-making positions are kept open, because we are afraid to take a permanent loss.The smart investor, never trades on the basis of fear. Therefore, draw up a clear plan and follow the rules closely. Investing without emotions is impossible. It is therefore important to sideline them by making the decisions at a calm moment.fear wise investing

Rule 8: Understand what you are doing

Novice investors often dive into things they like. A good example of this is the Bitcoin. At one point, even the postman asked me if he should buy Bitcoins. When I asked him what he knew about investing, he looked at me in a blurry way. In this case, my answer was easy: NO. This eventually saved him about $10,000, as the Bitcoin then crashed sharply. After this, I always received my post with an extra, broad smile.Therefore, always make sure you understand what you are doing. Only trade in investment products you understand. Make sure you have a basic understanding of the stock exchanges before buying a share. Also, only invest in more exotic investment products after you studied them sufficiently.Therefore, always ask yourself if you understand what you are buying. Is the answer NO? Then you should not buy the product. You will not receive a guarantee on investment products, so you cannot exchange the product if you are dissatisfied with the result.bitcoin bubble

For an investment in bitcoin you need nerves of steel

Rule 9: Set your time

Most people who invest are not particularly interested in the financial world. Above all, they want to get a nice return and think it is a shame that their money is becoming less and less valuable. In this case, it is best to save time and use an index fund. With an index fund, you automatically buy a basket of stocks and spread your risks. By depositing periodically, you can benefit from the stock exchange developments with a minimum time investment.Are you a smart investor and do you have time to really follow the stock markets? Then you can consider active trading. It is important to remember that very few people manage to beat the market. When you try to beat the market, you try to do something that even active fund managers rarely succeed in. Therefore, only actively trade when you find it interesting and when you have the time.Do you lack sufficient knowledge of the markets? Then it is wise to start trading with a small amount of money. At the same time you can invest a monthly amount in an index fund so you do not waste time. By trading on the side, you can discover whether active investing is suitable for you.Do you want to start trading yourself? Then be sensible and open a demo first! With a demo account, you can try the possibilities completely without risk. Use the button below to compare the best trading demo accounts:

Rule 10: Only invest with money you can miss

Let’s start this last rule with two facts. The first fact is that investing almost always pays off in the long run. The second fact is that not investing always costs you money. Money in a savings account is becoming less and less valuable due to inflation and tax.Still, this does not mean you have to invest all your money. Make sure you always have a savings account that you can use to pay for unexpected expenses. When you need to borrow money, you often pay a high-interest rate. A loan can therefore significantly reduce your return.Only invest with money that you can miss. Calculate how much money you need for your livelihood and invest with money that you do not need in the upcoming years. By doing so, you prevent a disaster, and you secure a better future for yourself!

How can you trade?

Nowadays, there are all kinds of methods that you can use to invest smartly. Many people mainly use old-fashioned investment methods. They only buy bonds and shares at their local bank.  A major disadvantage to this method of investing is the fact that you spend a lot on transaction costs. Moreover, the return is often no higher than a few percent on an annual basis.

If you want to trade smartly, you can consider an online CFD broker. With online brokers, you can trade in a modern way, and by investing smartly with a broker you can achieve much better results. Why is investing with a broker so much smarter?

Trading with a broker is smarter

trading with an online broker is smarter because you can use leverage. By using a lever, you can make a high profit with a small amount. For example, if you decide to trade with $100 and apply a leverage of 1:10,  you can trade in $1000 worth of shares. When you use a leverage, both your potential winnings and losses magnify.This leverage also allows you to obtain results with a low amount of money. The transaction fees are relative. Therefore, you do not pay a disproportionate part of your position in transaction costs.  In the end, trading with an online broker can be smarter….

What are the costs of investing?

Investing is never completely free! With any form of investment there are costs involved. Many investors underestimate the importance of investment costs. A higher cost percentage can significantly reduce the investment returns. But which costs are charged for investments and how can you keep these costs as low as possible?

Save on costs and compare first!

Before investing, it is wise to first compare the costs extensively. In a year’s time, a higher cost percentage of one percent can easily save you tens of thousands of euros in returns. It is therefore important to research the different costs your broker charges. This will prevent you from facing unpleasant surprises.Do you want to know where you can invest the cheapest? Use the button below to compare directly at which broker you pay the lowest costs:

How can you reduce your investment costs?

Brokers can charge many different costs. Of course, you want to obtain high returns. This makes it attractive to minimize costs as much as possible. But how do you do this?It is important to make a clear plan first. Only then can you determine at which broker you can invest most economically. Think about the following questions: Once you have the answers on these questions, you can determine what the smartest way is to reduce the costs of your investments as much as possible.

How often do you want to invest?

When you make many investments, low commissions are extra important. When you only make some investments, it can be more important to have low management costs and no inactivity costs.

With what amount are you going to invest?

When investing a small amount, it’s vital to choose a broker with a low commission. Fixed costs of $2 per transaction are no problem on an investment of $10,000, but are problematic with an investment of $100.At the same time, brokers with high service costs are unattractive if you invest a large amount. You’ll pay a fixed percentage on the assets you have invested.

Do you know in what you’re going to invest?

It is also important to consider what you will invest in. For example, one broker may be cheap when investing in shares, while another broker may be advantageous for investments in investment funds.Pay close attention when investing in foreign shares. Some brokers charge high transaction costs for investments in a different currency.The costs can vary greatly per broker. Therefore, spend enough time on the selection process of a broker, so that you do not face annoying and unexpected costs!Costs investment

Why are costs so important?

Many investors pay little attention to the costs of investing. This is a shame! Costs can strongly influence the long-term return. We explain this in the following example. In both examples $80,000 is invested at a return of 7% per year over a 25-year period.
  • At 0.5% annual cost you’ll end up with $380,000.
  • At 2% annual cost you’ll end up with $260,000
A minimal difference of 1.5% in costs can therefore cost you more than $100,000 in return! So be meticulous when selecting a broker or an investment product.

What are the costs of investing?

How much you want to invest depends on your situation. There are several cost items that a broker can calculate. Below we discuss the most common costs:

Transaction fee or commission costs

With many brokers, you pay a commission on every investment. This commission often consists of a percentage of the total value of the investment. Most brokers also charge a minimum amount of costs.When you invest in shares, eToro often is the most advantageous party. Read more about this broker.Not all brokers charge direct transaction costs. For example, brokers where you trade in CFD’s don’t charge a direct commission. Read here how transaction costs are calculated for this type of investment.

Spread on your investments

With all brokers you also pay a so-called spread. The spread is the difference between the buy and sell price of, for example, a share. The spread is always relative. You pay a certain amount per share that you decide to buy.The fixed costs or commissions are often clearly indicated. For example, you pay $2  on each transaction. Spreads, however, are more difficult to compare. The costs can differ per share. On one share you may only pay two cents at a broker, while on another share you pay $1. Do you want to know where you invest in a share against minimal costs? Then you will have to investigate what the spread for that stock is with different brokers.It is often possible to receive a discount on your spread when you invest with large amounts. Are you planning to invest with large amounts? Then it is wise to contact your broker for a discount.
Do you want to know more about spreads? Read the article what is the spread when investing for more information about spreads!?

Currency costs

With foreign investments, you often pay costs for converting currencies. This happens when you invest in a foreign stock that is noted in another currency than your own. You for example change euros to dollars. The costs charged by brokers can add up considerably. Sometimes you pay even a few percent. This, of course, greatly reduces the return on international investments. It is therefore important to research first how much it costs to invest in foreign shares.If you want to avoid currency costs in active trading, you can choose to trade in CFD’s. Furthermore, you always have an exchange rate risk when investing in another currency. The value of your share can increase. However, when the foreign currency also increases in value, you can still lose money. You will receive less of your currency back. Do you want to know how the exchange rate works? Then read this article.

Custodial fee or service charges

Traditional banks in particular still charge a so-called custodial fee. These are annual costs that are charged for holding securities. Fortunately, these costs can easily be avoided. Open a separate investment account where no custodial fee is charged. In our  overview of brokers you can find multiple brokers where you can invest without paying these safekeeping services.

Inactivity costs

With some brokers, you also have to pay money if you do not trade enough. Only when you make a minimum number of investments, you can avoid these costs. These expenses are especially annoying for the investor with a long-term vision. After all, buying and holding shares once will cost you money every year. Therefore, always investigate whether the broker charges inactivity costs.

Investment management costs

Investment funds usually charge management costs. These are costs for maintaining the portfolio. Other ongoing costs such as the administration and marketing costs of the fund are also passed on in this. Always remember that a more expensive fund is not always better! An index fund often has lower costs and often achieves comparable or better returns than an active investment fund.

Performance fee

Some funds also charge a performance fee. When a fund is doing well, you have to give up part of the return. Incidentally, this only occurs with actively managed investment funds. No performance costs are charged for index funds and trackers.

Costs for services

Many brokers also charge for specific services. Consider, for example, costs for streaming live quotes or costs for the use of a software package. It is therefore always wise to read the fine print first. That way you prevent your investments from suddenly becoming much more expensive.

Portfolio transfer fees

The final cost item for investments is transfer costs. Many brokers charge costs when you want to move your portfolio to another provider. Some brokers do offer to pay these costs for you. Moving to a different provider is often a hassle. It is therefore wise to prevent this as much as possible by directly choosing a good provider.

Costs for withdrawing money

Some brokers also secretly charge for withdrawing money. This is also annoying because it directly reduces your return. Therefore, always check whether a broker charges costs for withdrawing money.

Reduce costs by investing for free?

With some parties, it is also possible to invest ‘for free’. Please note that a broker who offers free investing always has ulterior motives. This can be harmless. Some brokers offer free investing because they hope clients will purchase other more expensive investment products. Other brokers try to make money sneakily by, for example, passing on other costs.Do you want to know more about investing without costs? In the article below you will immediately learn how investing works without costs:

Cheap versus expensive investment products

Because of a psychological bias, many people often have a wrong idea that expensive products are better. This is often not the case with investment products. For example, when you look at the returns of passive and active funds, you see that passive funds often perform better. Active mutual funds select stocks themselves with the aim of beating the market. Passive funds monitor the market by, for example, an index.The costs of an active fund are higher. Yet, you see that there is usually no higher return. Even with an equal return, you achieve a much higher return with an index fund. In 99% of the cases it is therefore best to choose the cheapest investment product.The same rule also applies when it comes up to choosing a broker. Cheap brokers often offer similar options as expensive brokers. There is therefore no point in investing with an expensive bank or broker. Unless you are looking for something very specific, it is almost any time better to go for the cheapest party.

Investing during the coronavirus

The coronavirus is spreading rapidly and has a strong influence on the worldwide economy. The panic has meanwhile also negatively influenced the international stock exchanges. Nevertheless, it is precisely in this situation that you as an investor can greatly benefit. In this article you will discover how you can earn money by investing during the corona virus outbreak. We also research which shares might be interesting to buy and you can read our forecast for the future of the economy.

Making money with the coronavirus

It sounds a bit crude: making money with the coronavirus. Still, it cannot be denied that it is these types of crisis that often offer good opportunities for the smart investor. There are different strategies that you can apply to take advantage of times of chaos and falling prices. But which strategy can you apply best? We look at different investment strategies that you can apply during the coronavirus.

Strategy 1: active trading

Do you want to respond to the situation with the coronavirus in the short term? Active trading might be the best decision in this case. With active trading you have the option to place orders at falling prices. We call speculating on a decreasing share price going short. When you go short, you achieve a positive return when the price falls and a negative return when the price rises.The coronavirus and the panic surrounding the virus had a strong negative influence on the development of stock prices. By going short by using a CFD you can speculate on decreasing stock prices. eToro is a good broker for trading in CFDs during the coronavirus. With eToro you are always protected against a negative balance. Moreover, thanks to the presence of a leverage, you can also speculate on price falls & price rises with a small investment.Do you want to try trading actively during the coronavirus without any risk? When you use the button below you can try trading for free with an unlimited demo account:

Options

Are you willing to take some bigger risks and speculate more actively? When this is the case options might be an interesting opportunity. With options, you can speculate on price falls and price increases of different stocks and indexes. You can apply additional leverage to options through CFDs. If you buy the right options, you can sometimes achieve tens to hundreds of percent in returns within a day.Do you want to know where you can try investing in options risk-free options with a demo? Use the button below to compare the different demos for free:

Method 2: buy discounted shares

People often react a bit extreme in times of panic. When the stock markets start crashing the process is often accelerated in times of crisis. People dump their shares without properly analysing the actual situation. People often forget that after a crisis there is almost always a substantial recovery. In the graph below you can witness the recovery of share prices after the credit crisis of 2008:credit crisis stocksIn times of crisis it is therefore smart to look for bargains. Many share prices fall more sharply than you would expect based on the company results. It is likely that the coronavirus will be under control at some point in the future and most companies will be able to continue like they did before. Of course, many companies are incurring losses because of the virus. Sales in many regions are reduced and this harms the profitability of these companies. However, these problems are rarely structural or permanent.It can therefore be very attractive to buy shares in companies that functioned well before the coronavirus spread. When you decide to buy stocks, it is important to pick a broker with low transaction costs. Do you want to know which brokers are the cheapest options for buying stocks? Use the button below to find a reliable broker to buy shares during the corona crisis:

What is the coronavirus exactly?

Before you invest during the coronavirus outbreak, it is important that you understand what the virus is. The coronavirus is not a single virus. The coronavirus is a family of many hundreds of viruses that can cause different symptoms. Symptoms are similar to those of the common cold, but breathing problems may also occur.The current outbreak is related to COVID-19, which is one of the seven members of the corona family that can be transferred to humans. The first infections occurred in China at the end of December. China’s stubborn Communist party administration failed to limit the outbreak resulting in a worldwide epidemic.At the time of writing (29 February 2020) there are more than 80,000 worldwide infections, 3,700 of which are outside of China. Also, 2,800 people have died of the coronavirus so far. The virus has now surfaced in South Korea, Italy and Iran, among others. Fortunately, the virus is not extremely deadly. Experts estimate that the virus will be fatal in just two to three percent of cases. The virus is especially dangerous for the old and weak.coronavirus investing

What is the effect of the coronavirus on the stock exchanges?

The coronavirus has a negative effect on stock prices. The prices of the largest stock exchanges fell more than ten percent in the week from 24 to 29 February. The companies in the Dow Jones and NASDAQ are currently worth hundreds of billions less. Below you can see how the price develops during the coronavirus:Other international stock exchanges are also doing poorly. The main stock market indices of Europe fell by more than ten percent due to the effects of the coronavirus. The stock market has not had such a bad week since the 2008 credit crisis.

Which shares are going down?

Almost all the shares are going down. Yet, some stocks are doing significantly worse than others. Shares focused on aviation, tourism, cars, raw materials and technology are performing especially poorly. Do you think the declines of these stock prices are too exaggerated? Then you can start looking for great buying opportunities!

How do the safe havens perform?

Besides stocks the prices of other securities also show significant changes. The prices of safe havens such as gold and the Swiss franc are rising. This is because people are looking for relatively safer investments during the crisis caused by the coronavirus. At the same time the price of oil is actually falling. The demand for oil is expected to decrease considerably as overall trade and industry have come to a halt.

What is the effect of the coronavirus on the future economic developments?

The effects of the coronavirus on future economic developments are expected to be limited. A so-called V-shaped recovery is expected. The coronavirus will limit economic growth on the short term. After recovering from the coronavirus, further economic growth can occur again. The effects of the coronavirus are not structural. There are no direct fundamental issues with the companies whose share prices are falling.Moreover, we can count on increased monetary and fiscal support from governments if the coronavirus continues to have a negative impact. The IMF has indicated that global growth has decreased. For the first time in history we see that the US, Europe, Japan and China are carrying out quantitative easing. Quantitative easing is expected to have a positive effect on stock prices.coronavirus decreasing prices

Development of worldwide demand

The coronavirus also has other interesting consequences. One consequence is the decrease in interest rates on mortgages. This can, of course, be beneficial for the housing market as real estate is now more affordable. Another favourable effect is the reduction in CO2 emissions. Because of the coronavirus China emits 25% less than normal. Due to the decrease in the use of oil, fuel prices are falling, which means that consumers have more spending power. This can also further stimulate the economy.The coronavirus has also reduced the demand for many products. Companies are reducing the prices of products as a result, which can further stimulate spending. If the corona crisis persists too long, it can be at the expense of jobs, which can lead to more structural declines in the economy.

Pandemic and globalization

Will there eventually be a full-scale pandemic? When the coronavirus strikes worldwide panic is expected to strike again. When this happens stock prices will probably fall even further. As a smart investor, there are enough strategies you can apply to benefit from this situation. It can for example be smart to go short on various stocks.The corona crisis will decrease the speed of globalization. International regions that are highly dependent on international trade will do less well. Europe, for example, is highly dependent on trade and can therefore expect somewhat stronger blows than America.

Who wins in times of the corona crisis?

When there are losers, there are almost always also some winners. Companies with a strong online presence could do surprisingly well. Consider, for example, a webshop like Alibaba. More people will order their stuff online when they no longer want to leave their house. The same naturally applies to companies that make it possible to order food online.

With which shares can you profit from the coronavirus?

In times of crisis, there are always parties that benefit. As an investor, it may be wise to invest in companies that provide services that may be extra popular during a crisis. In this section we discuss some companies that may benefit from the coronavirus. Before buying shares in those companies it is important to conduct a careful analysis of the situation.

Alpha Pro Tech

What kind of products become popular when a virus threatens the population? Exactly! Products that make it possible to protect you from the virus. The company Alpha Pro Tech delivers products that make it possible to protect yourself from the coronavirus. Alpha Pro Tech produces so-called N-95 Particulate Respirator face masks. They have considerably increased production and can barely keep up with the growing demand. The stock price has certainly risen sharply during the coronavirus outbreak. Do you think the crisis will go on for even longer? Investing in Alpha Pro Tech might just be a good decision in that case.

Novavax

Novavax is a Swedish company that has been involved in the development of drugs against the Ebola and the cold virus. These drugs are still not on the market. In the meantime, Novavax is also developing a coronavirus vaccine. If this succeeds, the company’s price will rise considerably. Investing in Novavax is very speculative and the results are strongly related to the outcome of the development process.

Novacyt

Another company that benefits from the coronavirus is Novacyt. This company is engaged in the development of diagnostic tests. The company has released a promising test for the coronavirus. If this test is fully approved within the United States, this can give the share a further boost. Investing in shares Novacyt is very speculative but also potentially very profitable.

Philips

China and other countries affected by the coronavirus outbreak will look for suppliers of medical equipment. A possible candidate for the delivery of this medical equipment is Philips. Does the company manage to obtain new orders? This might give a boost to the profitability of Philips and the stock price would probably increase.

Online shopping

Shares of companies that are engaged in online shopping could also do well in the future. Alibaba might expect an increase in orders since many Chinese consumers are stuck inside. Will the virus spread to America as well? The same might apply to Amazon in this case. In general, people will spend more time online. Companies that mainly make money with the internet are expected to perform better.

Airlines

Investing in airline companies can also yield a nice return in the long-term. The Air France – KLM share, for example, has had a hard time. This is not strange when you consider that the company had to cancel many flights. When the virus is beaten, it might be business as usual and the stock price could recover.

Safe havens

Safe havens such as bonds, the Swiss franc, gold and the Bitcoin can all benefit from the coronavirus. The prices of these securities could go up, especially on the short term. As a fast investor, you can of course still benefit from this increase in price.

What should you do with your current investments?

You may be wondering what you should do with your current investments during the corona crisis. Is it advisable to sell your shares? Probably not. The effects of the coronavirus are expected to be rather temporary. The companies themselves did not change significantly. It is the virus as an external factor that influences the prices of the shares so strongly.You can protect your portfolio by buying put options. You will receive a sum of money in the event of a sharp fall in share prices. This money could compensate for the lower value of your stock portfolio. This is actually a form of insurance. Remember that you pay a premium for an insurance policy: protecting your portfolio with put options is not free!You can also see the corona crisis as a great opportunity. You can use the falling prices to achieve favourable investment results. This is possible cby looking for interesting bargains. The markets will recover slowly after the virus has been eradicated. As a smart investor, you can profit from this.

Repaying a loan is the best investment

Many people borrow money to invest and that is a waste; after all, repaying a loan is the most profitable investment. The interest rate on a loan is so high that the cost of the credit does not outweigh the risks of investing.

What is a realistic return?

How much you can earn with an investment cannot be said with certainty. It is, however, the case that a higher risk is associated with a higher potential return. In a savings account you will receive two to three percent interest, with bonds you earn between four and six percent and with stocks you can achieve up to twenty percent return.When we compare the potential return with the cost of a loan, investing with borrowed money seems interesting at first glance. On a personal loan you often pay around seven percent, and by selecting good stocks you could therefore make a profit on this loan. The only problem with this way of investing is that it is extra risky.

Stocks and borrowing money

borrowing money investingThe return on stocks is in no way guaranteed. Although the prices have risen sharply over the past hundred years, there were also decades in which the stock exchanges did not find their way up. In such a case, it is wise to keep the stocks for a longer period of time; when you have to pay off a debt, this is not possible. The potential return on an investment therefore does not outweigh the risks.It is more sensible to simply repay your loans or not to take out loans in the first place. That way, you save seven percent interest costs on an annual basis and that is a return which would make many investors jealous.

Borrowing money anyway? Do it with leverage!

Still want to borrow money to invest? Then do it in a controlled way by means of leverage. By investing with CFDs, speeders or turbos, you can invest with leverage. The bank then finances most of the position so that you can earn a lot of money on the stock market even with a small amount.That way you cannot lose more money than your bet (the position is automatically closed before your credit runs out) while you invest with borrowed money. Before you invest with leverage, it is wise to first read more about CFDs in our category on this subject.

What is high-frequency trading?

When you start investing, you will run into many new terms. High-frequency trading is probably one of them. Stock market trading has changed a lot since the rise of high-frequency trading, but what exactly does that term mean?

Speed is essential

High-frequency trading is a way of acting with enormous speed. Powerful and fast computers scan the market for the high-frequency trading itself. At this speed you have to think of thousandths of seconds. The computers scan the market in search of market movements with which they can earn money.

Algorithms and stocks

High-frequency traders constantly search for the right algorithms. For example, if you want to buy Shell stocks as an investor, you can see that another buyer is buying blocks of Shell stocks. But the high frequency trader does not yet know which investor this is, and at what price this investor wants to buy. To find out, the automatic market maker (AAM) is put into operation. This imposes sales orders for the Shell stock that are higher than the current price.However, the order will not be executed if you have previously recorded that you do not want to pay more than a certain amount. AAM searches through all sorts of prices until it has found a price that is favourable to the seller and that is not above the price of the other buyer. This whole process takes place in thousands of seconds. If the AAM has determined the limit price, it buys as much stock as possible and resells it.

Trading for professionals

It is mainly the very rich investors and large banks that engage in high-frequency trading. This has to do with the large investments that are necessary for this. For example, the banks’ servers have to be as close as possible to the servers of the institutions where they trade. Only over a really small distance is a super-fast information flow guaranteed.High-frequency trading also requires highly trained people who develop the necessary programs and models. Often these people are expensive to have on the payroll. Finally, of course you need fast computers and programs above all else.

The consequences for the private trader

Obviously, high-frequency trading also has consequences for the private trader. Computers often leave the human factor out of consideration and only focus on orders and on certain technical levels. A large part of the trading of stocks, Forex and commodities is carried out by computers: in the end these programs influence the price.Many people therefore wonder how technical indicators and levels can often be kept. This is largely because people and especially computers maintain these levels. Because the levels are used for opening and closing positions, it is possible to recognize patterns. Ultimately, computers therefore contribute to the predictability of the market.

Should you engage in high-frequency trading or not?

Proponents of high-frequency trading claim that this way of trading gives liquidity to the market. Ordinary investors who want to get out of the market can always find a buyer due to high-frequency trading. However, there are also opponents of high-frequency trading.The opponents claim that the liquidity of high-frequency trading is greatly overestimated. In addition, they point to the fact that in a declining market buyers are rarely found and that high-frequency trading cannot provide answers to this.

The stock market crash of 1987: Black Monday

In the world of investing, good and bad times always alternate. In 1987, good times disappeared for many investors like snow in the sun. This was due to the stock market crash of 1987, also called Black Monday.

The beginning of the stock market crash

It was Friday, 16 October, 1987. The American stock market index, the Dow-Jones index closed 4.6 percent lower. The interest rate rose sharply and traders went home with great excitement due to the rising stock prices. On Monday, October 19, nothing seemed to be going on at first. Although there were already declines on the Asian stock markets, everyone watched the United States where the New York Stock Exchange was going to open.As soon as it opened, the Dow-Jones index lost more than 200 points. That day it lost more than 500 points. With this, the most important index in the world had lost a fourth of its value. As a result, the European stock markets also shot down.stock market crash 1987

Hitting bottom

The shocking drop continued on Tuesday, and the stock market closed at 204.57. In the following days the price continued to fall until it reached its low point on 10 November. The 152.36 points of that day meant a drop of 46 percent compared to the record of 11 August of the same year.What the investors were very pleased with was that the stock market recovered within two years. That was very different from the stock market crash in 1929. After that stock market crash it took 25 years before the prices had recovered.

A new stock market crash

The chance of a new stock market crash is very small according to traders, because the risk is now much more spread out. Nevertheless, the credit crisis that has arisen in America has gained increasing influence on the global economy.

The credit crisis

There was indeed no new stock market crash, but a credit crisis. This credit crisis, also known as the mortgage crisis, arose due to excessive optimism about the rise in wages and house prices in the United States. In a kind of overconfidence, banks were providing mortgages too easily to people who actually did not have enough financial resources.These mortgage loan portfolios were put on the market as bonds. These bonds have fallen enormously in value recently. Many banks that had also invested money in these loans also ran into problems.If you add up the weak dollar, you can well imagine that the economy has also been in trouble lately. As a result, the markets have already taken a few hits. The effect of this on the stock exchanges remains uncertain for the time being.

Saving or investing?

With the historically low savings interest, more and more people are looking at the possibility of making money with investing. In this article we look at the possibilities for investing and we also look at the advantages and disadvantages of both saving and investing; that way you can make an informed decision to start saving or investing.

Saving: the advantages and disadvantages

saving or investingMany English people save their money: they do this mainly because this is a relatively safe way to store money and thanks to the interest you receive something in return. However, when the interest rate is very low, your capital is worth less. The inflation – the rate at which prices rise – is actually higher than the interest you receive on your savings balances.A big advantage of saving is that the costs are low. Opening a savings account is usually free and you do not pay any extra administration costs. Due to the government deposit guarantee scheme, your savings only run a limited risk. Only if you deposit more than £100,000 at one bank do you run the risk of losing any of this money.Nevertheless, more and more Dutch people are choosing to invest part of their capital: with a negative return, you are actually a thief of your own wallet when you start saving. But what are the advantages and disadvantages of investing?

Investing: the advantages and disadvantages

Many people think that there is only one way to invest: you put money into a fund and when it goes well you earn a lot of money, and when it goes poorly you lose all your money. It is true that investing has greater risks, but investing always yields more money than saving over a longer period of time.It is also possible to reduce these risks. For example, it makes sense to spread your money over various investment methods. It is possible, for example, to invest part of it directly in stocks, to have part invested by an investment fund and to invest part of it in relatively safe bonds. By also spreading your risk over various regional zones and time periods, you can significantly reduce the risks, making it attractive to invest at least part of your money.

Wise & lucrative investing

The question of whether you should be saving or investing is actually formulated incorrectly; the question should be whether you should be saving and investing. To this question my answer is definitely a resounding YES! An interesting way to invest for beginners is to use an online broker. With an online broker you can choose which stocks, commodities and currencies you buy.It gets even better. With online brokers it is also possible to earn money in a declining market. Therefore it is a myth that you can only earn money when stock market prices are rising. For example, you can go short on a stock and in that case you earn money for every pound that the price drops.In addition to investing yourself, it may also be wise to put a part of your money into a fund. Funds are often mainly attractive in the long term. You can then save for a larger purpose such as a car or your pension. All in all, it is therefore most attractive to save and invest and to make use of various investment methods when investing.

Click here to compare online brokers right now & try it out yourself >>

Investing in the long term

When you invest in the long term, it is important to buy something that you expect to increase over a period of a few months to a few years. When buying a long-term stock, for example, it is particularly important to consider the business model and profitability in the longer term. In this article we look at how you can invest successfully in the long term.

Determine what you want to buy

Long term investingAn important first step is determining what you want to buy. First consider which category you seem to be interested in, e.g., Dutch stocks or precious metals. Then study the security in question and try to make a prediction about the sustainability of the current situation; is it likely that the current growth will continue?After all, in the long term it is very important to invest in something with growth potential. Consider, therefore, whether the sector in which you would like to invest has growth potential. For example, the computer industry has a lot of growth potential, but the postal services have a more questionable future. Once you know what you want to buy, you can go through a checklist to see if the stock you want to invest in for the long term is a good choice.

Checklist: is it wise to invest in the stock?

  • Take a closer look at the financial situation of the company
  • Does the company have suitable management?
  • How were the results in the past?
  • What are the future prospects of the company?
  • How much are the earnings per stock?
  • To what extent is there competition?

How do you get this information?

When you decide to trade in companies, it is advantageous that listed companies always have to publish certain data. By reading the annual accounts and the underlying figures, you can get a better picture of the company in question.Especially when you focus on the long term, it is very important to see whether the company can consistently deliver good results. When this is the case, you’re fine!

Maximizing your profits

In addition to the growth, you can also look at the dividend paid for an investment in the long term. Many companies make an annual profit distribution and owning such a stock can ensure that your results improve significantly. Always look at the exact dividend policy of the company so that you have an idea whether you can also earn money from the stock in another way.To maximize your profits on a long-term investment, it is important to look at a good exit moment. A short collapse does not have to be this moment anyway; it is wise to do the opposite when people panic. Yet almost no company has eternal life; therefore choose to get out at a certain point and switch to a different stock.

Investing wisely: discover how!

Anyone can invest: however, investing wisely can be a challenge. Discover in this article how you can invest wisely by applying some rules of thumb. If you apply these rules properly to your investments, you can improve your results by up to 76 percent.

First rule of thumb: losing is winning

This may sound contradictory, but it is not! The only way to win with investing is by losing sometimes. Obviously you would not be very happy if you lost money on every investment. In the next rule of thumb, we look at how you can ensure that you earn money in a sensible way.In order to make sure that you sometimes take your loss, it is important to think beforehand what your limits are. By setting your boundary, you eliminate unpleasant emotions and you are less likely to make an unwise decision.Within the software of most brokers, it is possible to use a stop loss. A stop loss is a certain value at which you automatically take your loss. By using a stop loss you can ensure that you do not get hit by huge decreases, such as were recently seen with the oil price.oil price

Second rule of thumb: gain more!

A second rule of thumb is to make gains more often than you take a loss! This may sound a bit more logical than the first rule of thumb, yet there are plenty of investors who ignore this rule and consistently lose more than they gain. To make it possible to gain more, you have to use so-called ratios. Wise investors earn a lot of money with this activity.With the use of a ratio, I mean that for every pound you lose, there is at least two pounds in profit. This means that when you open an investment you have to see if there is enough space to make more profit than the potential loss that you risk at the stop loss that you set.If this is not the case, a sensible investor would know that the best decision is not to make the investment. In this way you can avoid making an investment with an unfavourable risk-return ratio.

Third rule of thumb: always make a profit

Many investors panic at falling prices: that is unwise! If you are sensible, you should actually be cheering when prices are sharply falling. Sensible investors know that it is possible to take advantage of a falling price by going short.Always look at the general trend and make sure you invest with a broker where it is also possible to earn money when prices are falling. That way you can always benefit and maximize your results!

Fourth rule of thumb: Practice first with a demo

It is unwise to start investing directly with a large amount. If you are wise, you practice first with a demo. We have made an overview of brokers where you can best start, which makes it easy to start practicing immediately:

Fifth rule of thumb: Learn more about investing

The sensible investor first does plenty of reading. So request the free eBook ‘Earn your first 500 euros with investing’ right away and profit from the knowledge of experienced investors. Click here to request the eBook >>

What is the average return on investing?

Before you start investing, it can be interesting to know the average return on investments. In this article we look at past returns based on historical figures and try to give an indication of the average return you can achieve with investments. Finally, we also explain how you can achieve more than the average return by investing wisely.

Average return summary

  • The average return on shares is about 7-8%.
  • The average yield on bonds is around 5%.
  • You have to take inflation into account: the real rate of return is different.
  • The volatility of the shares is also important.
  • The average return you achieve depends on your portfolio

What is the average return on shares?

According to Warren Buffett, a famous stock trader, the average return on shares should be between six and seven per cent. According to him, the domestic product rises by an average of 3% over the long term, with inflation of around 2% on top of that. This brings the nominal growth rate of the total economy to five per cent.However, companies also pay out dividends which, on average, can yield six to seven percent returns on shares. This increase in share value is, of course, only received over the long term. If you had entered the market in 2008, your average return would have been a lot lower in the beginning.As shown in vanguard’s chart below, equities have indeed achieved an average high return over the past period.average return on equity

Shares, bonds or what else?

Of course, it is also possible to invest in something else than shares; nevertheless, research shows that shares on average have the highest returns. Professor Russell E. Palmer of the University of Pennsylvania states that in history shares have yielded much more than bonds.

If you had invested one dollar in 1802, it would have been worth USD 8,8 million in 2003! The yield on bonds would have been just $16.064, the yield on government bonds $4.575 and the yield on gold only $19.75. Please note that for this calculation dividends are reinvested.

So… should you always invest in shares?

It is clear that the average return on stocks is the highest. Does this mean that it is only sensible to invest in shares? No, that is a bit short of the point! Although shares generally have the best returns, they often also have the greatest risks.If, for example, you were to invest one dollar in shares in 2008 and if you were to measure up to 2010, there would be very little left of it. So if you want to aim for a maximum return instead of an average return, it is wise to remember that individual securities can deviate significantly from the average. But how can you ensure that you achieve the highest possible return?

Pursuing the highest possible efficiency

If you want to achieve the highest possible return, individual analysis is required. In the long term, you can then look at shares that have been performing well for some time and pay out a stable dividend. If you want to invest for income you can buy shares in a company like Royal Shell. Still, you can achieve an even higher return by also focusing on the short term.After all, you can achieve extremely high returns in the short term. Mass psychology plays an important role in this. When there is bad news, the masses often panic. By responding cleverly to this, it is sometimes easy for an investor to achieve a 100% return on a single investment. Take a look at the graph below; this was a good time to get involved!Plus500 graphIf you want to take advantage of such big stock movements in the short term, it is wise to do so at an online broker. With eToro you can also make use of leverage. With leverage, you can take a large position with a smaller amount of money. Of course, you can also practice with a demo first. Use the button below to open a free demo account:

What is the difference between nominal and real returns?

If you only look at the average return, you do not have the complete overview. The average yield in America since 1900, for example, has been 10.1%. However, this is the rate of return before inflation. Inflation is the process by which prices increase every year. You can then buy less for the same amount a year later.The real average return is the amount of return you have after deducting inflation. This return is a lot lower. For America, for example, this return on equities was 6.4% on an annual basis.Is there any mention of an average return? Then always check whether it is the nominal or the real yield. Also, always check which measurement period is used. For example, many funds mention the average return from 2009 to 2019. The economic crisis of 2008 is then conveniently kept out of the calculation.

What is the average return per region?

You can also break down the average return by region. Not every region has performed equally well since 1900. Below is a graph showing the average annual real return. Australia has performed best, while European countries such as Italy and Belgium have not performed particularly well.average return per regionWhen you invest, you can spread your risks over different regions. In this way, you avoid investing all your money in a region that doesn’t do so well on average.

What is the average risk-free rate of return?

When you invest, you get paid for the risk you take. There is also the so-called risk-free return. The risk-free return is the return you get with (almost) no risk. Usually, the average 10-year interest rate on government bonds is taken into account.In the past, the average risk-free rate of return in Europe was still 4%. Today this rate is even negative! When the average risk-free rate of return is very low or even negative, investors are more likely to take risks achieving a positive return.average risk free interest rate

Volatility on shares

Do not stare blindly at the average return on equities alone. After all, investments in shares can be very volatile. One year you can achieve a positive return of 30% while the next year you can achieve a negative return of 30%. That is why it is important to pay attention to the volatility of your return.When you have a long investment horizon, high volatility is not a big problem. When things are not going so well, you just wait for better times. However, if you have a short time horizon, volatility can be a bigger problem. Are you stepping in at the wrong time? Then suddenly you can lose a large part of your capital. Do you have little time? Then it is wiser to invest in low-volatile securities.A good way to reduce the volatility of your entire portfolio is by applying staggered entry. For example, invest a fixed amount every month in an index fund. In this way, you step in on both ups and downs and ensure that you achieve the highest possible average return.Volatility of return on equity

What is the average return on bonds?

Some people prefer to invest in bonds. The average bond yield in America between 1926 and 2008 was 5.3%. It is therefore a good rule to assume a nominal average return of 5% in the long term.When interest rates on bonds are very low, they no longer yield that much. In 2020, therefore, you will see that bond yields are not very high. Perhaps in a decade’s time, we will come closer to the historic average bond yield again.

Model portfolios & returns

By means of a model portfolio you can see what the average return would be in different situations. We have used the model portfolios as set up by Vanguard.

Defensive portfolios

Below you can see the results you would have achieved with a portfolio that consists almost exclusively of bonds. We also call this way of investing defensive. This name is used because the average volatility on bonds is lower. You can see the average return of a defensive portfolio in the image below:average return defensive portfolioaverage bond yield

Portfolios mix or neutral portfolio

People who can handle a little more risk and volatility often opt for a more mixed portfolio. This type of portfolio is also called neutral. You then have a solid balance between bonds and shares. The focus for this type of portfolio is on the medium term. Below you can see the results you could expect with this type of portfolio:neutral average return

Offensive portfolio

If you have a long time (think of 15 to 30 years) you can consider an offensive portfolio. This way of investing focuses on growth. You then invest almost exclusively in shares. The average return is higher, but the volatility is also clearly higher. Below you can see what historical results you would have achieved with a more offensive portfolio:Offensive portfolio average returnequities average return

Expected returns: what is a realistic return?

But what kind of investment return does the average investor actually expect? A survey carried out by Schroders showed that investors expect an average return of 10% and millennials even expect a return of 12%. These are quite high percentages. The chance that these investors will be disappointed is therefore high.Older investors seem to have gained a more realistic picture over the years. The so-called baby boomers expect an average annual return of 8.6%. The older a person is, the lower the average return expected.Professional investors seem to be able to make better estimates. Research has shown that they target around 5% on an annual basis. The expected average return also varies greatly per region. For example, people living in Indonesia expect an average return of 17.1% and people living in Italy 7.1%.In the end, when you start investing, you must have realistic expectations about the average return you can achieve. Don’t expect too much! Disappointment is a bad advisor which can negatively affect your investing skills.

Beware of excessive expectations

Sometimes you read on the internet that parties promise an average annual return of tens of percent. When you read this, it is in any case important to be very sceptical. There are not many funds or parties that manage to achieve such high returns. Even one of the best investors in the world, Warren Buffett, achieves no more than 20% average annual return.Therefore, always carry out extensive research into the source of the return. How realistic is it that this average return will continue to exist? Is it mere luck or is the strategy unique and very clever? A critical attitude is important for every investor.

Average return or historical return over the last 10 years

Are you curious about the average or historical return on, for example, shares over the past 10 years? In the graph below you can look at the development of the AEX. The AEX is one of the most important indicators of the Dutch economy. 10 years ago, the share price stood at 340 euros in 2010. In 2020, the share price will be at 600 euros.Growth over this period is therefore EUR 260, or EUR 26 on an annual basis. This represents an annual growth rate of 7.6%. So, an investment in stocks would have worked well over the last ten years!Average return 10 years

How can you calculate the return on investments?

You can easily calculate the return on your investments over a period of time. For this, you need the following data:
  • The price at which you opened your investment.
  • The current price of your investment.
  • The number of years.
You then go through the following steps to calculate your return:
  • Calculate the difference between the purchase price and the current price.
  • Divide this amount by the number of years you own the investment.
  • Then divide this amount by the price at which you opened the investment.
Let us explain this using the example given in the previous paragraph where the average return over 10 years was explained:
  • The difference between EUR 600 and EUR 340 is EUR 260.
  • Divide the amount by 10: 260/10 = 26 euros.
  • Divide it by the purchase price: 26/260=0,076.
In this way you calculate the nominal return on your investment. Do you want to know the real return? Then you still have to deduct the average inflation during the period from your return. If, for example, inflation is 2%, you subtract this from the average return.

Psychology & investing: better results

If you want to achieve better results with investing, you can learn a lot from social psychology. In this article we discuss some familiar psychological concepts that immediately ensure that you will achieve better investment results!

Case study: output of more than 100%

Many people are satisfied with a return of a few percent: ‘Well, it is more than I receive on my savings account‘, you also hear many people say. That is all well and good, but that way you do not profit maximally as it is certainly possible to achieve much higher returns.Here you can use mass psychology: people often have a strong tendency to start from easily available information, this is also called the availability bias. When a company is mentioned in the news in a bad way, you quickly will see people selling the stock in bulk; it is precisely because this information is suddenly available that more and more people act on it without there necessarily being a reason to do so.I myself always benefit from this kind of mass psychology, which gives me better results with my individual investments than most Dutch people. A while ago, for example, there was a regulatory problem with an online broker: Plus500. The regulator blocked several accounts temporarily because there was an administrative problem at the company: there was clearly a crisis of confidence.Predictable as people are, you immediately saw a downward rally in the price. Nevertheless, the company was still very profitable and they paid high dividends. The problems were quickly resolved and the price was still very low. I immediately bought more than £10,000 in Plus500 stocks and within a few months this amount more than doubled!Plus 500 graph

Prospect theory: risk aversion

From the above story, it quickly turns out that you do not have to settle for the average return on stocks. By wisely taking mass psychology into account, you can achieve better investment results than the majority of investors. Another interesting psychological theory that you can use when investing is the prospect theory.prospect theoryAccording to this theory, we all have a strong risk aversion. The vast majority of people will opt for the safe option in an experiment; even when this turns out to be worse from a rational point of view. Consider the choice between a 90% chance at £10 and a probability of 10% at £0 or a probability of 50% at £100 and a probability of £50% at 0. The second scenario has a higher probable yield.However, many people will rather opt for the first option. This is because people are generally more inclined to avoid losses than to earn profits. When you are aware of the consequences of this theory, you can use a stronger investment strategy.Eliminate the emotions when investing by determining in advance when you will take your losses and at which point you will take a profit. This is possible through the so-called stop loss and take profit. The biggest mistake that investors regularly make is to cut down on current profits too early and not to take losses when this is necessary. Now that you know better, you will not do this, and that will endure that you achieve better results with your investments!

Focussing on confirming your view of the world

Another mistake that people make over and over again is looking for confirmation of their own world view. We rarely look for information that goes against our perspective; usually we mainly look for information that corresponds to our way of thinking. As an investor, this is of course dangerous!psychology investingWe also call this phenomenon the confirmation bias whereby we only search for the information that fits our prediction. Often we intuitively make a prediction and because we are only open to information that is consistent with this, we do not see that the investment may not be so strong at all. Therefore, always try to approach different perspectives as objectively as possible and try to use a system when selecting the stocks in which you are going to invest.Moreover, negative information within our brains gets a stronger weight. As a result, we make a decision on the basis of negative information rather than on the basis of positive information. This is counterproductive. With a huge decline, as in the case study, a huge increase is possible afterwards. Keep your eyes and ears open and make sure you get the best results with your investments.

Establish a system!

The fact is that there are all kinds of systems in our brains that perhaps protect our ego, but that are also counterproductive for our results as an investor. It is therefore important to establish a system before investing. Write down on paper under which situations you will buy certain stocks, when you will sell them again and how you will deal with risks.By working with a system and by being aware of the different psychological mechanisms that you can work against, you can ensure that you make decisions based on reason rather than on emotion.

Investing in futures: explanation

In this article you can read everything about futures. A future is a contract between two parties in which it is agreed that a certain quantity of a financial instrument is traded at a certain price. This is therefore the conclusion of a transaction that will only be executed in the future.

What exactly is a future?

A future is a so-called derived product and is also called a derivative. A future always relates to something; this can, for example, be a stock but also an index like the AEX. Futures are also regularly used by entrepreneurs; it is not an investment but an appointment to deliver for example 1000 cows at a future time at the current market price.

Futures can be used for different things:

  • Agricultural products such as cattle or coffee
  • Precious metals such as gold or silver
  • Commodities such as oil, copper and lead
  • Stock of companies or other financial securities

Trading in futures yourself

It is possible to trade in futures yourself. You invest in futures through an online broker. Because you can invest in futures with a broker, you do not have to keep an eye on administrative matters yourself. With futures you simply receive the difference in price you achieve on the underlying effect.

In this case, it is possible both to earn money with an increasing and a decreasing price of the underlying security. There are also contracts where you earn money when the price falls.

Click here to see the brokers with whom you can invest in CFD futures >>

futuresThe payment

The payment at a future occurs at the end of the term; this can be done through a physical delivery or a delivery in cash. With a physical delivery the mentioned goods must actually be delivered. Usually, however, physical delivery does not take place and the contract is sold again before it expires; the futures are mainly used on the stock exchange to make a profit by taking advantage of price differences in the underlying securities.

There is therefore more often a delivery in cash. This can be on a stock, for example; if the price has increased you will receive money. Futures, however, are also used by companies to hedge certain risks; you can, for example, have a future payment at a different temperature which can be beneficial if you have an ice cream store.

What determines the price?

The price of a contract of future may differ from that of the underlying security. When the term is longer, this difference is often larger. This is due, for example, to interest; you need less money to purchase a future than to buy the underlying securities. When the period is long, the price of the future will also be higher.

With equities, it is also important to remember that a future usually does not pay a dividend. The more dividend you will lose within the term of the future, the greater the discount on the future relative to the stock. Incidentally, there are also types of futures that do pay dividends, for example CFDs.

Rollover of a future

Futures can expire; if the investor wants to keep the future longer, the future can be rolled over. The rollover is done by buying a future with the same underlying value but a later expiry date. Rolling over usually costs money.

However, this is not very common; futures are mainly used for trading in the short term. In addition, futures are very useful for managing investment risks by hedging.

Bull vs Bear: How do you jump into the market?

When investing, people often talk about the bulls and the bears. In this article we look at what they mean by bullish and bearish stock markets and analyse how you jump into the bulls and bears market!

What is a bull market?

A bull is of course a well-known animal, but besides an animal it is also a well-known Wall Street term. If you visit Wall Street, you can actually spot a statue from a bull. When we talk about a bull market, we are talking about a market where prices mainly rise. So, we speak of a positive market sentiment in which the stock prices continue to rise.

Many people confuse the bull market and the bear market. You can remember the bull market by remembering that the bull’s horns are pointing upwards.bullish market

What is a bearish market?

A bear market is the opposite of the bull market and the nightmare of many investors. When there is a bear market, there is a prevailing negative market sentiment. The prices of the shares then drop. You can remember the bear market by remembering that a bear’s claws are pointing downwards when it attacks. On Wall Street you can’t find a bear: probably investors do not want to face their fear too often.

bearish market

How can you make a profit in a bullish market?

When there is a bullish market, there is a high level of confidence among investors. The people who participate in such a market are also called the herd. This is exactly the most sensible strategy in a bull market: keep up with the trend. A bull market is a good time to buy shares.

However, it is important to stay sharp in a bull market; after every top there is a bottom. As we saw in 2008, stocks can fall sharply and the consequent downward trend can last for a long time. When stock prices start to fall, it can be wise to sell your shares again.

How do you make a profit in a bearish market?

In a bear market there is a period in which the prices of shares fall sharply. Investors are generally very pessimistic about the future. Many investors think that a bear market is a cause for panic; with all those falling share prices there is no money to be made!

Nothing could be further from the truth; it is possible to short sell. When prices fall sharply it is wise to use this powerful option. When you open a short position, you make money as soon as the prices of shares drop. Thanks to this modern option which you can use at online brokers, you can make money investing in a bull market as well as in a bear market.You can also use special derivatives to open a position on a falling stock price. Well-known derivatives with which you can respond to a bearish market are:

How long does a bullish or bearish market last?

This strongly depends on the type of share. Some shares are less volatile. These shares are often not very exciting: they can sometimes continue to rise for up to ten or twenty years. The returns are not extreme, but very stable.

At the other extreme, you will find strongly cyclical bullish and bearish markets. These stocks can show enormous rises or falls in a period of a few weeks to years. This can also be seen in the Bitcoin market where the price of the cryptocurrency could rise or fall by as much as tens of percents.

More about bullish markets

Do you want to know more about bullish markets? In this section you’ll learn everything you need to know about bullish markets!

What causes a bullish market?

There are several factors that can contribute to the creation of a bullish market. You can often recognize a bullish market by:
  • A decrease in unemployment
  • An increase in disposable income
  • Higher profitability of enterprises
  • A strong confidence in the stock markets
  • An increase in IPOs

What is the best way to invest in a bullish market?

There are several ways to invest in a bullish market. Buying and holding shares can be a good strategy. The optimism in the market ensures that share prices rise sharply.A slightly more risky strategy is to buy additional shares when prices continue to rise. You then determine in advance how many extra shares you buy with each percentage of price rises.It can also be smart to buy stocks in the retracements. Even in a bullish market the price will drop in between. You can respond to this by placing orders in precisely those short declines. By means of technical analysis you can determine the best time to buy.You can also go for full swing trading. This is a way of trading in which you place orders on both the rising and the falling markets. This is the most risky strategy, but the one where you can best respond to both falling and rising trends. Would you like to try this way of investing? At online brokers you can try this method of trading for free with a demo:

What is a well-known bull market?

A good example of a recent bullish market is the dot-com situation in 2000. The prices of various technological stocks rose tremendously under the influence of good news and high expectations. By now we know this did not end well…dot com bullish market

More about bearish markets

Want to know more about bearish markets? In this section you’ll find everything you need to know about bearish markets!

What causes a bearish market?

The causes may vary, but often a bearish market is caused by an economic slowdown. You can recognize a bearish market by:
  • A decrease in employment
  • A decrease in disposable income
  • Lower profitability of enterprises
Interventions by governments can also cause a bearish market. The government can increase the taxes on shares or companies, which lowers the profitability of businesses.

What phases are there?

A bearish market often does not arise overnight. In the beginning there is a phase of high confidence and high share prices.Then more and more negative news comes out, causing share prices to fall sharply. Panic strikes and investor confidence drops.When prices have fallen sharply, there are investors that step in again. They see the shares as nice bargains. Prices will still fall in the beginning, but less hard. Eventually, the bearish market will turn back to a bullish market where prices will rise again.

Are bear markets nice entry moments?

The tricky thing about a bear market is that it is very difficult to estimate when it is best to enter. This is because it is almost impossible to accurately estimate the bottom. A bear market often takes several years and the prices of shares can easily drop 50-60%.A temporary correction is often a better time to enter. Corrections are temporary declines in a rising market.You can respond to a bearish market by applying cost dollar averaging. With this strategy, you buy stocks periodically. This prevents you from investing a large amount of money at the wrong time in one go.

What is the best investment strategy?

Defining a good investment strategy is critical when you are going to invest. Not every investment strategy suits every type of investor. In this article we will discuss the best investment strategies so that you can decide which way of investing suits you best.

What is the best investment strategy?

Unfortunately, there is no holy grail of investment: there are different investment strategies, each with its advantages. It is therefore advisable to try out different strategies: in this way, you will automatically discover which strategy gives you the highest return. In this article we will discuss the most popular strategies in detail so that you know the available possibilities.

Do you want to try out new strategies yourself? Then it is advisable to do this with a free demo. This way, you won’t lose any money if the strategy doesn’t work properly after all. Use the button below to immediately compare the best demo accounts:

What are the most popular investment strategies

Strategy 1: value investing

Value investing is the same strategy Warren Buffett applies. Warren Buffett has proven that you can achieve a good return with this strategy: year after year he managed to beat the S&P 500 with an average annual return of 20%.The principle behind value investing is to buy shares that are undervalued. Investors using this strategy believe that stock prices do not directly reflect a company’s intrinsic value. This belief is not unrealistic: the market is determined by supply and demand and people do not always react rationally. People sometimes buy shares which are seen as hype and ignore interesting but boring companies.This investment strategy only works well if you have a lot of patience. The strategy is therefore really focused on the long term: you buy stocks or an index fund, and you hold on to it for a longer period of time. Many investors achieve mediocre results with this strategy because they panic and sell their shares. This is a shame; if you conduct your research, you can achieve a high return with value investing.

best investment strategy

Do your homework

When you invest in value shares, it is crucial to do your homework well. As a value investor, you actually have to eliminate all noise to focus on the big picture. The decisions you make should be based on trends that focus on decades into the future. Consider whether a particular industry or sector still has opportunities for growth in the future and study the company’s financial data. Is the company currently undervalued? In that case, it may be interesting to buy the stock.Investors who invest by looking at the net asset value of a stock often use the price/earnings ratio or P/E. This ratio indicates how many times the profit the stock is traded. You can then compare this ratio with the ratios of other shares in the same sectors to determine whether the share is undervalued.According to research, this method of investing almost always yields higher returns in the long term. Only during the Great Depression of 1929, the dot com bubble in 1999 and the period from 2004 to 2014, this method of investing was not the most profitable. Fortunately, investment strategies are flexible: you can always choose to switch to another investing strategy.If, as an investor, you do not have enough time to investigate what the best value stocks are, you can also outsource this process by investing in a fund. At DEGIRO, you can invest in ETFs listed in the core selection without paying transaction costs. Use the button below to directly open an account with DEGIRO:

Strategy 2: growth investing

Another popular investment strategy is growth investing. Investors using this investment strategy are often looking for the next great invention. If you want to be successful with growth investing, you have to select stocks that are not performing well yet but do have a lot of potential. This can be a stock that gets a lot of attention recently.If you had bought Apple shares at the launch you would have become very rich by now. A more recent example is the enormous advance of Tesla and Uber: these stocks are also clear examples of growth stocks, as they are traded against highly elevated prices relatively to their profitability.

Is growth investing the same as speculating?

Growth investing is not the same as speculation: the focus in growth investing is still on the longer term. When applying this strategy, it is important to also examine the health of the underlying company and the growth potential. Within the strategy you buy shares in order to hold on to them for a longer period of time. Nevertheless, as a growth investor, it is important to be more flexible: these companies are often not very stable, so it can be important to sell your stocks in between.Investing in growth stocks has one major disadvantage: you often do not build up an income with them. Since companies make little or no profit in the growth phase, they usually do not pay out a dividend. The focus is therefore entirely on the growth of the company and the expectation for further future growth. Rumours therefore have a stronger influence on the price of growth stocks.

Is growth investing profitable?

Over a longer period of time, value investing seems to be more profitable: however, this does not mean that growth investing is less profitable. In specific periods of time, growth investing can be profitable.It is when you want to apply this strategy that it is particularly important to stay focused. Growth stocks often fall in value faster when the economy is not performing well. Moreover, it is important to ask yourself whether the company is sufficiently innovative. For example, the GoPro stock price fell sharply after it had become worth almost three times as much: the product was certainly valuable, but turned out to be easy to replicate.If you want to buy growth stocks, it is important to do so at a broker where you do not pay high transaction costs. In this way you avoid losing a large part of your profit by paying high commissions. At eToro, you do not pay set commissions on stocks, which increases your profitability. Use the button below to directly open an account with eToro:

Strategy 3: Dollar-Cost Averaging

I am a big fan of an investment fund where dollar-cost averaging plays an important role. Dollar-cost averaging is actually not a stand-alone investment strategy: you can use this strategy in combination with the other strategies in this article.The principle behind dollar-cost averaging is that it is very difficult to predict the market. You often do not know whether the market is at a high or low point. Even when a new record price has been set, the rate can still rise for years to come. At the same time, the financial markets could collapse tomorrow. Dollar-Cost Averaging offers a solution to this uncertainty.

Spread your investments

When you apply this strategy, you no longer have to worry about timing. For many investors it is tempting to try timing the market. However, in many cases it is smarter to step in staggered, and this is what you do with a DCA strategy.You then decide, for example, to invest a certain amount each month. You can then choose to invest this amount monthly in an investment fund, or you can also purchase a set of shares each month. By applying this strategy, you avoid investing a large amount of money at the wrong time. It is advisable to carefully review your financial situation in advance so that you have a clear overview of the amounts you can invest periodically.

Does dollar-cost averaging work better?

Research shows that dollar-cost averaging does not necessarily work better. If you really know how to time investments well, you can often make more profits. You would then have to buy more stocks when the market is underperforming and sell shares when the market is doing very well.The problem is that our emotions often get in the way: especially for novice investors, it can sometimes be difficult to ignore your prejudices. Moreover, by applying the dollar-cost averaging strategy you avoid a lot of stress: you will never again feel that your investments have been mistimed, since you are following a system that you have set up yourself.

Further risk diversification

If you want to limit the risks of your investments as much as possible, you have to make sure that your investments are sufficiently spread. By applying dollar-cost averaging, you already make sure that you get in at different times and that the risk decreases over time.You can limit your risks even more by spreading your investments across different regions and sectors. In this way you can absorb losses in one region or sector through successes in the other. Keep in mind, however, that spreading the risk also reduces the chance of huge profits.

Strategy 4: momentum investing

Momentum investing follows the motto: the trend is your best friend. When you apply the momentum investing strategy, you buy shares when they are in a rising trend. If the price falls, they often look for shorting opportunities. When you open a short position, you get a positive result when the stock price drops. To successfully benefit from momentum investing, fairly active trading is required.This is immediately a major disadvantage of the momentum investing strategy: if you often have to buy & sell stocks, you pay transaction costs over and over again. According to this scientific paper, momentum investing works especially well when buying & selling is done on a monthly basis. With this way of investing you really need to find a good balance and not want to open positions too often. With momentum investing it is of course extra important to choose a broker with low transaction fees.

Shorting

Taking short positions can be an important part of a momentum investment strategy. However, this is not without risk: in theory, your risk is unlimited. A share can never fall further than 0, while the price of a share can double in value many times. If you apply short selling irresponsibly, your loss can increase rapidly.With momentum investing, if you have sufficient experience and practice a lot, you can achieve better results. However, it is important to take the risk of short positions into account. Momentum investing is therefore only suitable for the somewhat experienced investor.

Strategy 5: active market speculation

If you also like investing as an activity, you can choose to actively speculate on the market. Active speculation can be very profitable, but the emphasis is on can.Investors who speculate open positions in the very short term. You then try to take advantage of market volatility caused by rumours or a news report. When a company publishes its annual figures, you can open a position on them. If the figures are better than expected, you can see that the stock price rises and if the figures are disappointing, the share price falls.If, as an active trader, you manage your risks well, then even if you make the right decision in less than half of the cases, you can achieve a positive result. This method of investing requires nerves of steel and sufficient time and knowledge. Would you like to learn more about speculation? Then read our extensive manual on speculating on the stock market:

Strategy 6: investing to create an income

Most of the investment strategies we have discussed place the emphasis on achieving price gains. You select stocks that you expect to rise in the future and buy them. Not all investors are looking for price gains: there are also many investors who invest to build up an income.If you want to build up an income with shares, you have to look for shares that pay out a high dividend. High dividend paying stocks are often shares of the more stable companies with limited growth. There are also special ETFs that focus on high-dividend stocks.Even if you invest fully to create an income, it is still advisable to keep an eye on the stock price development. A dividend of five per cent is of little use if the stock price falls by ten per cent every year. Therefore, check whether the company’s stock price is reasonably stable. By buying in periodically, you also prevent investing all your money just at the top.

Strategy 7: socially responsible investment

Do you have certain ideals and do you think it is important that they are included in your investment strategy? In that case, you can actively look for socially responsible investments. Socially responsible companies take into account the influence their business operations have on other stakeholders.It is important to think for yourself what you see as socially responsible. The concept of social responsibility is very subjective and not everyone has the same idea about it. Incidentally, socially responsible investment can be a good strategy, as conscious investing is becoming increasingly popular. If more people only invest in stocks that are good for the environment, this can give a boost to this type of company.

Strategy 8: investing in small cap & penny stocks

Another investment strategy is to invest in small companies. Small-cap companies include companies with a market capitalization of between USD 300 million and USD 2 billion. These shares can be particularly attractive, as they are often less conspicuous. As a result, shares in smaller companies can sometimes be significantly undervalued. Moreover, there is a chance that they will be bought by a competitor for a nice premium.Investors who do not mind taking greater risks can also choose to invest in penny stocks. Penny stocks are stocks that are literally worth a few cents. An advantage of investing in this type of stock is that you can quickly achieve a substantial return: when the price rises from one cent to two cents you immediately achieve a return of 100%. However, you also have to be careful with this type of company, because the chance of them going bankrupt and losing your entire investment is also much greater.

Strategy 9: contrarian investment

Investors who apply the contrarian investment strategy correctly can achieve a high return. A disadvantage of this investment method is that you can only apply this strategy when the economy is underperforming and share prices are falling. When you use the contrarian investment strategy, you buy up stocks in strong companies that (hopefully temporarily) fall in value.This strategy works well because many people panic when stock markets crash. Although companies may be adversely affected by the crisis, the effects on strong companies are often temporary. In some cases, a crisis can even benefit a strong company: for example, when other companies fall, competition is reduced.When applying this strategy, it is important to pay extra attention to selecting the right shares. The company has to be profitable when the economy is performing well: when this is not the case, your strategy will not work out, and you lose money in the long run.

Strategy 10: sheep or no strategy

The majority of new & novice investors do not have a strategy at all. We also call this group the herd of sheep. These are often the investors who buy an enormous number of stocks just before the share price collapses. They realize something positive is happening too late and lose money because they buy the stocks when everyone is already taking their profits.If there is one lesson I want to teach you in this article, it is that you should not be a sheep. Every investor needs a strategy. Fortunately, an investment strategy does not have to be complicated at all! In the rest of the article we will briefly discuss how you can put together a good strategy yourself.sheep strategy

Composing an investment strategy

Now that you know what investment strategies exist, you can compose your strategy. A strategy should always suit your personal situation. For example, if you have little time, you should not opt for active speculation. Therefore, first choose a clear strategic direction and then adapt the preconditions of the strategy to your personal preferences.A good first step in composing your investment strategy is to write down your goal. Determine how much you want to earn with your investment and determine how long you have to achieve this amount. Based on your goal you can determine whether a short or long-term strategy suit you better.Determine the initial amount you start investing with and calculate how much extra money you can invest periodically. By clearly stating your financial situation on paper, you avoid getting into trouble because you are investing money you can’t really afford to lose.Draw up clear rules for your strategy. When do you buy a share, and when do you sell a stock? Clear rules are important and prevent you from making emotional decisions that are unlikely to benefit your profitability.It is important to regularly evaluate both your investments and your strategy. A good investor is a flexible investor: by always remaining critical of your own skills, you avoid losing a lot of money unnecessarily with your investments.In theory, any investment strategy can work: in practice, some strategies are better suited to you than others.

investing strategy

Short versus long term

You have now seen a clear overview of the different investment strategies. You can also divide the strategies into short and long-term strategies.

Short-term investment strategy

In the short term, you will have to adopt a different investment strategy than in the long term. In the very short term, you are more likely to speculate: you then try to predict the price in the short term. You can then take advantage of a small price movement by opening an investment position and closing it again a few days later.You can invest in the short term by using a CFD investment strategy. CFDs are contracts on securities that make it possible to profit from price fluctuations in the (very) short term. When determining a short-term strategy, the following is important in any case:
  • When do you get in and why? Make a clear analysis.
  • Use a stop loss to avoid losing too much on one position.
  • Use orders to automate purchases.
In the short term, the focus of an investment strategy is much different; you are usually looking for a quick profit. The fundamental aspects or the underlying figures are then much less important. In this form of investment, the emphasis is often on the things that stand out in the short term; think, for example, of speculation based on the news or the analysis of patterns on a chart.Do you want to learn how to trade in the short term? Read our investment tutorial for more information:

Long-term investment strategy

When you plan to buy physical shares, a long-term strategy is more appropriate. Think of Warren Buffett‘s investment strategy; buying undervalued stocks and then holding on to them for a longer period of time. Only once the shares have increased in value enough you consider selling them again.Even if you invest in the long term, there are all kinds of strategies to devise. Think, for example, of the way in which you select shares or the way in which you divide your money between shares and less risky bonds.

How do you determine the best investment strategy?

The best investment strategy often depends on your personality. People who like to avoid risk might be better off investing in the long term physically. If you don’t mind high risks, you can invest in more risky investment products such as CFDs.

Determine for yourself how much risk you want to take with your strategy. After all, there is no one-sided strategy; a strategy is ultimately entirely personal. To find a suitable strategy, it is important to have a clear picture of your own risk profile.

Composing your strategy

When you know how much risk you want to take, you can put together your own strategy. You can do this by setting disciplined rules. Think for yourself when you buy or sell certain stocks and then stick to those rules.It is important to practice and experiment a lot. In this way you can perfect your strategy before you start investing with real money. With a demo account, you can experiment and discover which strategy suits you best. That is why you should first open a demo account with a broker!

What is a stop loss order?

The stop loss is essential when you start investing. With a stop loss you can minimize the losses on your investments. But what is a stop loss order? And how can you use a stop loss to limit your losses and maximize your profits?  In this article you can read everything you need to know!

What is a stop loss order?

A stop loss is an order that is automatically executed when a certain price is reached. You can set a stop loss after you buy a share. The value of a stop loss indicates the loss at which the share should be sold automatically. You can use the stop loss at any known broker: among others at Plus500, eToro and DEGIRO.

After the value of a stop loss order is touched or exceeded, a market order is activated. The order is then executed at the best available rate. A stop loss is therefore not a guarantee: in a volatile market you may receive a less favourable rate. With a guaranteed stop loss, you ensure that your order is always executed at the specified value.

How do you use a stop loss?

A good broker to trade actively is Plus500. At Plus500, you can use CFDs to open positions on both rising and falling CFD share prices. With Plus500 you also have the option to use a stop loss order:

When you open a position with Plus500, you can select the option close at loss.  Here you can enter the amount at which your position must be closed automatically.stop loss order Plus500

At Plus500 you can set a stop loss. Illustrative prices.

Using stop order for selling

When you buy a share for $5 you may decide that you want to close the investment at a loss of $1. If this is the case, you would set a stop limit order at $4. When the price of the share drops to $4 or less, the stop loss is activated. When the market moves slowly, the shares are sold at the price of $4. In some cases, the market can move rapidly. Your shares can then be sold at a lower price, for example $3.90.

Use stop order for buying

You can also use a stop limit order to buy a share. You then set a value on which you want to buy the stock. For example, you may decide that you want to buy a share when its value reaches $5. When the price of the stock drops to $5 or less, the shares are purchased at the most favourable price available. If the market is very volatile, the price can drop even further before your order is executed.

What is a stop limit order?

You can also choose to use a stop limit order. As with a stop loss order, an order is placed when a certain share price is reached. In this case, however, a limit order is placed. With a limit order, you can indicate at which price range you want to execute the order.

An advantage of a stop limit is that the order is only executed at the price you set. A disadvantage is that sometimes the order is not executed at all. When you use the stop loss to limit your losses, they can therefore accumulate even further.

What is the trailing stop-loss order?

A special form of the stop loss is the trailing stop-loss order. The trailing stop-loss moves along with the price of the share and you can use it to limit losses and maximize profits. With the trailing stop-loss, you set a certain value where the position closes automatically.

However, this value is not absolute  but  relative. The stop loss moves along when the price moves in a favourable direction. When you open a position at $20.00 with a trailing stop at $19 and the price rises to $25, the trailing stop automatically moves to $24.

What is a guaranteed stop order?

Make sure the broker offers a guaranteed stop. With a guaranteed stop order, your shares are guaranteed to be sold at the declared value. To use a guaranteed stop order you have to pay extra transaction fees.

With a guaranteed stop, you can be sure that the position will close at the said loss, even if the market suddenly falls sharply. Plus500 is a high-quality broker where it is possible to use a guaranteed stop loss. You can try out the possibilities at Plus500 for free with a demo. Use the button below to open an account directly:stop loss

For whom is a stop loss suitable?

Many long-term investors do not use a stop loss. It is the investor’s goal to hold the shares for a long period of time. With dividend payments, they achieve a positive result over the long term. People who invest in the long term often buy extra shares when the price falls briefly.

For the active trader,  the use of a stop loss is always advisable. If you want to speculate on the stock market in the short term, it is wise to determine at which price you take your loss and profit before you open an investment. By making these decisions in advance, you prevent yourself from leaving your position open for too long.Many novice investors tend to leave loss-making positions open for too long and to cut off profitable positions too early.

How do you use the stop loss order?

Randomly setting a stop loss order is not a wise decision. It is better to decide a level based on a good analysis. Many investors use technical analysis. With technical analysis you can analyse and predict market movements.

The price of a share is strongly influenced by the stop loss orders of other investors. For example, if investors jointly place stop orders at a horizontal level, there is a good chance that the price will fall further there.

What are the advantages of the stop-loss order?

The ability to use a stop loss in your trading strategy clearly has advantages. The stop loss makes it possible to manage your losses. With a stop loss, you can ensure that the position is closed immediately when you reach a certain loss.

However, you can also use the stop loss to secure your winnings. This is also called a take profit order. The take profit functions similar as the stop loss, with the only difference being that the position is now automatically closed at a certain profit.It is also possible to use the stop loss as an order. For example, you can set the value to a lower amount and when this amount is reached you automatically buy a certain amount of the share.All in all, stop loss orders give you more control over your investments. Even when you’re asleep or offline, you can be certain that your investments are well managed. The use of stop loss orders is certainly highly recommended for the active trader.

What are the disadvantages of a stop loss order?

A stop loss order can also cause you to lose money. Especially if you set the stop loss order too close to the current rate, chances are you will lose money on your position. Even in the event of a clear trend, the price always moves in the opposite direction.

retracementsIt is therefore important to carefully examine at what level there is a high change the trend will change. Make sure the price has enough room to move. By leaving some breathing space, you prevent yourself from losing money just before the price moves in the predicted direction.

Is it wise to invest with your own bank?

There are still many people investing with their bank, and that is a shame! In our article on cheap investing, we show that there are considerable differences in investment costs between different brokers. The banks often offer the least favourable trading conditions at the highest cost. In this article, we look in more detail at alternatives to investing at the bank.

Why is investing with your bank often not a good idea?

Many people invest with their bank: this could be HSBC or Lloyds Bank, for example. Of course, this is simple: after all, you don’t have to open a new investment account when you already own a savings account with your bank. Yet, it is not a good decision to invest in stocks & bonds at your bank.

At HSBC, for example, you already pay a basic fee of £42 per year just to own an investing account. In addition, you pay £10.60 on each stock transaction. All this makes investing with a bank expensive and this is at the expense of the return and the possibility of spreading your risks.It is ultimately cheaper to invest with an online broker. Most online brokers do not charge an annual fee for the use of the account; so if you do little with your account, it will cost you nothing. The costs of buying a share are often also lower.

Are there advantages to investing with your bank?

Do you get more when you invest at the bank? Actually, no; there are no good reasons justifying expensive investments at the bank. The possibilities are usually the same or more limited as those of another online broker. Only when personal contact is a factor, a bank can win from an online broker; at a bank like HSBC you can often visit a branch to open an account, for example.

Does it make much difference?

Some investors do not think it is worth switching. What does one percent of extra transaction costs make out in the bigger picture now? If you calculate the differences over the long term, that one per cent can make a huge difference.

This is because you also receive a return on investment. If you invest $100,000 at a yield of 6%, you will earn $574,349.12 after 30 years. If you pay 1% extra in costs and therefore achieve a return of 5%, you will have earned $432,194.24 after 30 years. Your total result will be more than 32% lower because of that one percent in transaction costs!

What are alternatives to investing with your bank?

It is now clear that investing in shares & bonds with your bank is often not the best idea. Fortunately, there are plenty of alternatives. In this part of the article we discuss other parties with whom you can invest on more favourable terms.

Buying shares without commissions

When you invest small amounts, it is attractive to be able to buy stocks without commissions. After all, even a fixed commission of £2 on a stock transaction can significantly reduce your return when you want to buy shares with an amount of £100.At eToro you can buy & sell shares without commissions. This allows you to spread your risks by buying multiple shares even with a small amount of money. With eToro, you pay no service costs, which makes investing with eToro a lot more attractive than investing with your bank. Use the button below to directly open an account with eToro:

Trading in index funds without commissions

If you prefer to invest in ETF’s, you can opt for DEGIRO. At DEGIRO you can buy both local and international stocks at reasonable rates. Even more attractive is the fact that you can buy and sell investment funds from the core selection without transaction costs. Cost savings certainly mean a higher return in the long term! Use the button below to directly open an account with DEGIRO:

For active trading

If you prefer to actively speculate on the markets, you need a different type of broker. With a CFD broker you can actively speculate on both price rises and falls. A normal equity broker is not very suitable for this: because you pay transaction cost, your return quickly decreases.One example of a good broker for active trading is Plus500. With Plus500 you trade in derivatives on shares, so you do not physically buy the stock. This means that you do not pay any fixed commissions on your investments, allowing you to actively speculate regardless of your investment amount. It is possible to try Plus500 free of charge by means of a demo. Please click on the button below to try Plus500’s features directly for free with a demo:

Discover what’s right for you

Ultimately, it is important to choose a broker that suits you well. That is why it is wise to compare the different brokers with each other. Determine for yourself what you find most important about a broker and make a choice based on your selection criteria. In our overview of brokers you will find several good brokers that may suit you.Don’t forget, creating a demo is free and completely risk-free. So, first try which broker you like and then get started with the big money!

Low risk investing: how to invest at low risk?

Risk and return are inextricably linked. Fortunately, there are sufficient investment products with a relatively low risk with which you can still achieve a good result. In this article we discuss the best investment options for the investor who wants to avoid risk as much as possible.

How can you invest at low risk?

When you start investing, there is always a risk. The level of this risk varies greatly per investment product. There is always a chance that you will lose (part of) your investment. It is therefore important to only invest with money you can afford to lose in the long term. In this way you avoid getting into financial problems due to your investment behaviour.Do you want to practice investing first? In that case, you can try out the possibilities completely free of charge with a demo. Use the button below to immediately open a demo with a reliable party:

What are the best low-risk investments?

  • Stable shares: with stable stocks you can even build up an income.
  • Investment fund: invest in a selection of shares and achieve a stable return.
  • Bonds: Investing in loans is often less risky than investing in equities.
  • Savings account: you can find high-interest rate savings accounts on the internet.

Stable shares

Equities have the reputation of being risky. This is certainly the case when you invest in growth stocks with an uncertain future. For example, many technology companies have never made a profit: investors buy the stocks in the hope that the company will have green figures in the future. Not all shares are very risky: by investing in stable shares of larger companies you can build up an income with a lower risk.Investors who want to avoid risks as much as possible often opt for stocks that pay out a high dividend. Even when the stock price drops, you still receive a nice annual dividend. If you want to invest in shares at a lower risk, it is wise to buy the shares for the long term. A buy & hold strategy is the least risky, as the return on stocks has always been positive in the long term. However, you should be patient and not sell your shares when the market is in a dip.Do you want to know at which brokers you can buy shares against low fees? Then take a look at our overview of best brokers:

Investing in an ETF

Another low-risk form of investment is ETFs. An ETF is an exchange-traded fund that passively tracks a particular market. An ETF can, for example, follow the price movements of the AEX or Dow Jones. By buying an ETF, you benefit from the price movements of the underlying index without having to select stocks yourself.You can achieve a good return with an investment in an ETF. It is smart to apply the principle of cost-dollar averaging. You then periodically pay a fixed amount into a selection of ETFs. By buying in periodically, you avoid investing all your money at the top, which reduces the volatility of your results.If you regularly buy an ETF, it is wise to do so at a broker with low fees. With DEGIRO you do not pay transaction fees on the funds which are included in the core fund, which makes this the ideal party to invest in ETFs. Use the button below to directly open an account with DEGIRO:

Investing in bonds

Bonds, and government bonds in particular, are also low-risk. A bond is issued by another party. As an investor, you receive interest on the bond and at the end of the term you get your investment back. However, it is important to pay attention to the creditworthiness of the issuing party: if the company behind the bond goes bankrupt, you still lose your entire investment.Whether investing in bonds is profitable depends very much on interest rates. When interest rates are very low, the return on bonds drops sharply. If the interest rate rises suddenly, the value of your bond may decrease. This is not necessarily a problem: at the end of the term, you will still get your original deposit back.

Savings at a higher interest rate

Saving is actually also a way of investing: after all, you also receive a return on it. The problem with saving these days is that most banks no longer offer you any interest. As a result, you lose money, as inflation and taxes shrink your assets.Savings accounts with higher interest rates can still be found abroad. Because these accounts are also part of the deposit guarantee system, you don’t have to worry that your money will just disappear when the bank goes bankrupt. This makes it possible to save money at most banks with little risk. On the Raisin website you can see a nice overview of the different banks and the interest rates at which you can open an account. Use the button to compare the possibilities:

How can you further limit investment risks?

Do you want to invest at the lowest possible risk? In that case, it is wise to reduce your investment risks as much as possible. In this part of the article we will discuss how you can still invest successfully with little risk.

Being prepared is half the work

Still, many investors dive into the deep end without being able to swim. Start by drawing up a clear plan. A good investment plan will at least indicate what the ultimate goal is and how much time you have to achieve this goal. It is also important to clearly indicate within the plan what kind of risks you are prepared to take.

Invest money you can afford to lose

It is important to only invest with money you can afford to lose. Too many investors step in blindly and then find out they need that money for a repair. This is unwise: by investing with money you cannot afford to lose, you risk having to sell your investment at an unfavourable time.

Apply risk diversification

One of the best ways to reduce the risks of your investments is to apply risk diversification in a smart way. You can apply risk diversification in different ways:
  • Investment products: invest your money in different investment products.
  • Time: invest your money at different times to avoid bad timing.
  • Sectors: invest your money in different industries.
  • Regions: invest your money in other, interesting regions.
When your risks are spread over many investment products, you reduce the chance that you will immediately lose a large part of your capital in the event of bad news.

Invest periodically

If you want to invest at low risk, it is wise to invest periodically. The stock exchanges are constantly moving up and down, which makes it difficult to determine a good entry moment. If you invest a fixed amount every month, you step in at both the favourable and the unfavourable moments.

Avoid complicated products

It is never advisable to invest in investment products that you do not understand. Complex financial products can yield very high returns. However, if you have little experience, it is not advisable to start investing in these.

Take your time

The greatest risk of any investor is the investor himself. Due to impatience, investors lose huge sums of money every year. When the market is not doing so well, it is often best to wait. When you have more time, the risk of your investments automatically decreases.

Reduce your loss by using a stop loss

The first step in low-risk investing is to reduce your loss. You can do this with online brokers by using a stop loss. A stop loss is a value to which you automatically close an investment; as a result, you cannot lose more than you want to risk, and you invest with a lower risk.You can also reduce your loss by using the option to short sell. The market usually moves alternately up and down; when you short sell, you achieve a positive return when the price falls. This allows you to achieve good results even during an economic crisis. This reduces your risk during, for example, an economic risk.You can use these possibilities at an online broker. Are you curious what the best online brokers are to invest with?  Then compare the best brokers with each other:

Can you also invest without risk?

Investing completely without risk  is not really possible. However, you can try investing without risk by opening a demo account with a broker.Ultimately, it is wise to invest with as little risk as possible. You can do this by ensuring a good relationship between the risks and the potential return. Suppose for every $5 profit you make $5 loss, you then have to make the right decision in more than 50% of the cases. There must be a better way!You further reduce your risk by maintaining that for every potential loss of $5 you make a profit of $10. That way, you have to be right in less than half of the cases to still make a lot of money with your investments. You can apply this method of investing by using orders, it is crucial that the moments when you take your loss and take your profit are linked to certain technical levels. You can read more about this in our tutorial.

Relationship between risk and return

Ultimately, risk and return are linked. For example, the risk of a share is usually higher than the risk of a (government) bond. This is due to the fact that the results of a share depend on the company’s results, which in turn are often linked to the economic situation within a country.In the case of bonds, however, these are loans that are repaid, unless the company really can no longer do so. The price of a bond still changes per period and is often linked to the average interest rate; however, if you wait until maturity, you automatically get your money back at the end of the term.If you want to achieve a high return with investing, you will have to take more risks.

Systematic risk investing

It is possible to systematically limit the risk of your investments. You can do this by spreading out your investment; for example, you can invest part of your money in gold, part in a holiday home, part in bonds and part in stocks. By doing so, you can also make a distinction between short-term and long-term investments.By systematically dealing with your investment risk, you can ensure that you achieve a lower level of risk and therefore better results on the stock market.

What is yield and the yield curve?

You can use the yield and the yield curve to understand how much your investments bring in. In this article we will discuss what yield is, and we will also take a look at the different yield curves.

What is yield?

Yield shows the returns on an investment over time. Yield is expressed as a percentage of the original investment. All returns are included in the yield: dividend payments on a share and interest payments on a bond are therefore also included.

For some types of securities, the yield is fixed: this is the case, for example, for a bond with a fixed annual interest payment. Many other securities have a variable yield: dividends on shares, for example, can fluctuate sharply depending on the performance of the underlying company.

What is a yield curve?

The yield curve shows visually how much the yield develops over the longer term. This can be shown in a graph, which gives you a line on the graph that shows a certain shape. Usually, this shape is a curved line. This is the curve with which investors can make their predictions for the future.

How can you calculate the yield?

It is easy to calculate the yield. The yield actually shows the cash flow you generate with your investment. You can therefore easily calculate the yield using this formula:

Yield = your net result / your invested amountLet us illustrate this with an example. When you invest in a share with $10 and the price rises to $12, you achieve a positive price gain. The company also decides to pay out $0.50 in dividend. Your total yield on the share then amounts to ($2 + $0.50) / $10 = 25%.

Is a high yield always positive?

It is always advisable to investigate whether the yield is also favourable in the long term. For example, the yield of a share can be high when the company pays out a lot of dividends. If the company’s income rises little, this can cause problems in the future. The high yield in the short term can then significantly reduce the yield in the future.

What type of yields are there?

You have all kinds of yields. The type of yield depends on the underlying security, the duration of the security and the return you receive.

Yield over shares

You can calculate the yield on your shares in two ways. The cost yield shows the return you make on the amount you have invested. You calculate this result as follows:Cost yield = (price increase + dividend paid out) / price at which you bought the shareYou can also choose to look at the yield based on the current market price. We also call this form of yield the current yield; you calculate this value as follows:Current yield = (price increase + dividend paid out) / current share priceWhen a share increases in value, the current yield decreases. There is an opposite relationship between the yield and the share price.

Yield over bonds

The nominal yield on a bond is easy to calculate. You do this by dividing the interest payment in a year by the face value of the bond:Nominal yield: annual interest / face value of the bondThere are also various other yields that can be calculated when investing in a bond. Not every bond pays out a stable interest rate.Yield to maturity (YTM) = this calculation shows the return that you achieve when you hold the bond until maturity (the moment when the face value is repaid).Yield to worst (YTW) = this calculation shows the minimum return you would achieve with the bond. In some cases, for example, the issuer of the bond can recall the bond, which reduces the return.Yield to call (YTC) = this value shows the yield at the time a bond is called back. Only callable bonds can be recalled.

Pay close attention to the yield!

Because there are different ways to calculate the yield of a bond or share, it is important to carefully assess how the provider of the investment product reaches a certain value. This prevents you from investing in a security with too high expectations.

What yield curves are there?

If one fixes the yield of a bond in a graph, the horizontal axis will be the maturity in years and the vertical axis the yield of the security. The curvature of the line that indicates the yield is what we call the yield curve. Here we can distinguish three different forms. The normal, inverse or flat yield curve.Yield curves are widely used to reflect bond yields. You then see how the yield develops when you buy a bond with a longer maturity.

Normal yield curve

The normal yield curve is a line on the graph that runs slowly from low to high. It is the normal situation where longer-term loans will yield higher returns. Because the horizontal line is the maturity of a loan, the normal yield curve will be an upward curve.

Normal yield curveInverse yield curve

If a more unusual situation arises in which short-term loans actually yield a higher return, the line in the graph takes a different form. The yield curve is then a line that runs slowly from high to low. We also call it an inverse yield curve. This yield is less common, but is theoretically possible.

Inverse yield curveFlat yield curve

A totally flat line in the chart showing the yield of a bond means that a loan yields the same yield for every possible maturity. In practice, this yield curve hardly ever occurs because this is practically impossible. The flat line is called the flat yield curve.

How can you use yield when investing?

Investors can use the yield curve to make decisions about how they want to invest their money in bonds. If you are looking for a long-term investment, then you would like to see a normal yield curve. This indicates that your investment will yield more and more returns over the long term.However, if you are looking for short-term investments, an inverse yield curve would be ideal. This situation does not happen regularly, but it can give you a large return in a short period of time. However, it should be kept in mind that this often involves a higher credit risk.

Be cautious with conclusions from yield curves

The yield curve is useful for making predictions about the yield of bonds. However, one should be cautious about the conclusions to be drawn from it. The graph can indicate that a loan will yield a certain percentage of return over a period of 5 years. This is by no means a guarantee that this will actually be the case in five years’ time.There are many factors that ultimately determine whether the return will actually be achieved after the period. These factors are not included in the calculation of the yield. To calculate this, way more complex calculations have to be made.

Using moving averages when investing: explanation

Moving averages are very useful as a technical indicator when trading Forex and shares. You can use them to determine strong support and resistance levels. Moving averages are calculated by averaging the price over an X number of periods.Tip: Read more about support & resistance in the article about trend lines & horizontals!

What are moving averages?

A moving average is a technical indicator that you can use when trading shares. With the moving average, you can see how the average price of a share has developed over a period of time. This eliminates small, random price fluctuations.

Understanding Moving Averages

The moving average is a trend following or lagging indicator, as the indicator is based on past prices. The delay is greater for longer periods: the 200-moving average is thus further behind than the 50-moving average. You can adjust the moving average yourself: if you take a shorter period of time, the indicator is a lot more sensitive. The short-term moving averages are especially useful for short-term trading, while the long-term moving averages are useful for the long-term investor.The 50 and 200 moving averages are popular among investors: however, this does not mean that other moving averages cannot be used. You can experiment with different levels to see what works best for you.

How do you set moving averages?

When investing, you can choose between two types of moving averages: the simple moving averages or SMA and the exponential moving averages or the EMA. The simple moving averages are calculated by adding all the closing prices of the periods and dividing them by the number of periods. The EMA also calculates the average. The only difference is that the closing prices of the later periods count more strongly here.The strength of any technical indicator lies in the number of investors who use it. Investors mainly use the 50 and the 200 days moving averages. There is no strong difference between the use of the simple or exponential form. So, when you are going to invest in Forex or shares, it is wise to use these specific moving averages.We only use moving averages if there is a clear trend. Within a consolidation, a moving average is therefore unusable. Only when I consider opening an investment, do I place the moving averages back on the chart to see if they match the trade I want to open.I do not, therefore, use moving averages as a decisive factor. You can see moving averages as an extra factor that can give you confirmation of your plan.

Set the moving averages within Plus500

A handy broker where you can use moving averages is Plus500. Would you also like to open a free (demo) account with this broker? Then click here for more information!Setting the moving averages within the Plus500 software is easy. To achieve this, press the setup indicators button and select the moving average indicator. Here you can enter the periods one by one (50,200). Don’t forget to tick exponentially when you want to use this. Select colours that are easily distinguishable from each other (e.g. blue and red).plus500 moving average

Setting moving averages within MetaTrader

Also, within MetaTrader it is straightforward to add moving averages. To do so, go to Insert, Indicators and select moving averages. Add the indicators one by one with the values 50 and 200 and exponential as type. I always make the moving average a bit thicker and give them striking colours so that the moving averages are easy to recognize and analyse.

The position of the moving averages

The position of the moving average can be used to determine the general trend. In case of a downtrend, the moving averages are normally above the current price, it is then wise to sell. When the moving averages are just below the price, there is an uptrend and it is wise to buy.It is important to look at both the 50-moving average and the 200-moving average. Both averages must be below the price to identify a long set up (where you buy). When you look at a short set up (where you sell) both indicators must be above the price. In addition, the indicators must be in the correct order: 50 and then only 200!moving averages forexYou can also look at the movement of the moving average: when the moving average rises, there is probably an uptrend and when the moving average falls there is probably a downtrend.A crossover can give you even more information. When a short-term moving average (50) crosses over a long-term moving average (200), this is a clear confirmation of a rising trend. When the short-term moving average (5) crosses below the long-term moving average (200), this is a clear confirmation for a falling trend.You can use the moving average in combination with the MACD, which subtracts a 26-day exponential moving average from a 12-day exponential moving average.

How to use moving averages as support/resistance?

Moving averages can also be used as support or resistance levels. See if one of the moving averages is always touched without being broken through. If this is the case you can use them as extra support when taking up a new position.

When the market consolidates (the price has no clear direction) the moving averages are often quite flat. When the price has no clear direction, the moving averages are therefore not useful: in this case you should remove them from the chart.

What should you pay attention to in the case of moving averages?

  • The order is important: are the moving averages sorted in order? The order is normally 50 and then 200 where the fastest indicator is closest to the current price level.
  • The angle of the moving averages can be used to determine the strength of the trend. A sharper angle is often an indication that the trend is getting stronger.
  • Finally, the separation between the moving damages is important. When the distance between the moving averages increases, the trend intensifies.

How do you use moving averages?

Moving averages can therefore be perfectly used to support the identification of resistance and support levels. I always use moving averages as an indicator as soon as I want to take a position to see if there is an additional confirmation. Most of the time, however, I simply remove the moving averages from the chart: in the end, the price action and horizontal levels are decisive for taking a position on the Forex or stock market.

What is defensive investing and how do you do it?

There are many kinds of investors. There are, for example, some investors who dare to take a little more risk to get a higher return, but there are also investors who focus a little more on limiting the investment risk. If you engage in defensive investment, you fall under the latter group. Would you like to know how you can invest defensively yourself? In this article we discuss the best way to build a defensive investment portfolio.

What is defensive investing?

If you invest defensively, you are well aware of the various risks involved in investing. You do want to make a profit on your investments, but you avoid the riskier investment products. Even if these investments can bring you substantial profits. You simply make the safer choices, even if these choices give you less return than the risky investment choices.Someone who invests defensively is also called a defensive investor. Someone who is prepared to take a little more risk for a higher profit is called an offensive investor. An offensive investor focuses less on the risks of an investment product and more on the return of an investment.

How can you invest defensively yourself?

Do you consider stability and wealth preservation to be more important than growth and returns? In that case, defensive investing might be right for you! There are several ways in which you can invest defensively. We discuss some popular options in this article.

Investing in an index fund

You can use an index fund to invest defensively. You can easily buy an index fund or ETF on the stock exchange. An index fund or ETF tracks a basket of shares listed on a certain stock exchange. This allows you to spread the risks over a selection of shares, which means that your risks are lower, and you still benefit from market developments.If you also want to invest (periodically) in an index fund, it is best to open an account with DEGIRO. At DEGIRO, you do not pay any buy & sell costs when you buy ETFs that are listed in the core selection. Use the button below to directly open an account with DEGIRO:

Investing in defensive shares

You can also choose to specifically buy the more defensive shares. Defensive shares are shares that perform reasonably well under all economic conditions. These are shares in stable, large companies that have already built up a strong position. When you buy defensive shares, you don’t have to expect miracles: because the company is already this big, the price will often not rise sharply. Nevertheless, you can often enjoy a stable dividend which allows you to build up a nice income with defensive shares.If you want to invest defensively by buying shares yourself, it is best to do so at a party where you do not pay high commissions. At eToro, you do not pay set commissions when you buy stocks, making this the perfect option:

Investing in bonds

Bonds, too, are often chosen by defensive investors. Stock market wisdom suggests that you should buy a percentage of bonds equal to your age. Bonds give you a fixed, stable income stream and if the underlying party does not go bankrupt, you simply receive the amount of your investment back at the end of the term.However, when interest rates are low, it is difficult to achieve a favourable return with bonds.

A savings account with more interest

A last option for the investor who likes to take less risk is to save money at a higher interest rate. With Raisin, you can put your money on a deposit at higher interest rates. The website works together with foreign banks, all of which are covered by the deposit guarantee scheme. As a result, you can still achieve a positive return even if a bank collapses. Use the button below to immediately compare where you can open a savings account with a higher interest rate:

How do you draw up a defensive investment strategy?

A defensive investment strategy always focuses on security and stability. Achieving returns is a secondary objective.When you want to invest defensively, you only invest in low-risk investment products. These are, for example, (state) bonds with a good creditworthiness and a short maturity. So-called blue-chip shares in large, stable companies can also be used within a defensive investment portfolio. defensive investmentA defensive investor mainly holds cash positions when the market falls. In this way, he avoids large losses on the stock market. Moreover, as a defensive investor, you can use a stop loss: in this way you prevent a large part of your money from being lost when the market falls.Risk diversification is also particularly important for a defensive investment strategy. You can spread your investments over different investment products, regions and sectors. Moreover, by stepping in at different points, you avoid entering at the peak of the market.Shares with a low beta are particularly interesting when you want to invest defensively: these are shares that are barely affected by changes in the market.

Where can you invest defensively?

Defensive investment can be done at a so-called broker. A broker is a party that makes it possible to invest in, for example, shares. Before you can invest, you need to have an account with a broker. We have created a clear overview with which you can quickly select a good broker. Use the button below to compare the different brokers directly with each other:

What are the advantages of defensive investing?

There are advantages to defensive investments. As a defensive investor, for example, you are less likely to make a loss than an offensive investor, simply because you take less risk. It is not excluded that you may make a loss, but because of your cautious investment behaviour, the chance of loss is smaller.In addition, you can achieve a good return, even if you invest defensively. In the long term, in any case, you earn more than people who leave their money in their savings account, because the savings interest rate is very low at the moment. If you invest defensively, you let your assets work for you in a sensible and fairly safe way.

Shares or bonds?

Many people see equities as offensive investment and bonds as defensive investment. At some level this is true. On average, shares are more volatile and riskier, but they also promise higher returns. At the same time, bonds often pay out a fixed interest rate and at the end of the term you get your money back.Nevertheless, shares need not always be less risky than bonds. There are also very stable shares and very risky bonds. Of course, when you buy bonds from a company that is almost bankrupt, this brings with it greater risks. It is therefore important to build a good balance within your portfolio between risky and less risky securities.

Is a defensive investment something for me?

Before you start investing, it is good to determine what kind of investor you are. Do you find it exciting to take risks and do you prefer to invest as safely and cautiously as possible? In that case, you are a defensive investor. On the contrary, do you find it exciting to take risks and are you prepared to take occasional losses to make higher profits? Then you are an offensive investor.Ask yourself which way of investing suits you. Are you more focused on profit than on the risks of an investment product? In that case, you are not a defensive investor, but an offensive investor. If you focus more on the risks and limiting the risks of investing, then you are a defensive investor.

Starting with defensive investing

Are you a defensive investor? Then you are looking for a suitable defensive investment strategy. You use this strategy to make the right investment decisions as a defensive investor. There are various defensive investment strategies, so there is always a strategy that suits you.Do you want to invest money in an investment fund? Then you are looking for a defensive investment fund. This fund has a strategy that suits the defensive investor, in other words, your preferred method of investing.Are you curious what investment strategies exist? Read our article with 10 investment strategies that you can apply immediately:

How can you invest in Africa?

You can focus on Europe, America and China if you want to invest part of your assets, but you can also focus on other regions. Although most people invest in the European market or the American market, more and more people are also investing on the continent of Africa. This is for a reason, because with the right investments in Africa you can make a nice profit.In this article you can read more about investing in Africa. We will discuss the possibilities for investing in Africa. Besides this, we also discuss the things you have to pay attention to when you invest part of your assets in Africa.

How can you invest in Africa yourself?

African stock exchanges are less accessible than European or American exchanges. The entire stock exchange in Ghana, for example, has been bought by a large pension fund. However, by taking advantage of the opportunities, it is possible to invest in Africa. In this part of the article we discuss how you can invest part of your assets in this interesting region.

Investing in shares

Unfortunately, it is difficult to buy individual African shares through the stock market. This is due to the fact that many stock exchanges are not yet well-connected abroad. Nevertheless, you can invest indirectly in shares of companies with an interest in Africa. For example, many Chinese companies invest in Africa as the country is working on a Belt & Road project that will connect China better with Africa and Europe.When you want to buy shares, it is important to investigate the underlying company well. After all, the company results can fluctuate sharply. At eToro, you can buy & sell shares without commissions. Use the button below to open an account immediately:

Investing in an ETF

The easiest way to invest in Africa is to buy an ETF. A well-known ETF, for example, is the iShares MSCI South Africa. An ETF invests the money of many investors at the same time in a composition of shares. As a result, with one investment you immediately apply a certain degree of risk diversification. Moreover, investing in ETFs is relatively cheap, and by stepping in periodically, you avoid investing in Africa at the wrong time.Do you want to try investing in Africa yourself? Then open an account with DEGIRO! At DEGIRO you can buy & sell ETFs from the core selection for free. Use the bottom button to directly open an account with DEGIRO:

Real estate

Some investors choose to invest in real estate in Africa. Real estate in Africa is still relatively cheap. Nevertheless, a direct investment in real estate in Africa is very complex: legislation is complicated and corruption can cause you to lose your property. Moreover, when the local currency falls in value, your investment can become considerably less valuable.However, you can choose to invest in African real estate by buying a fund: examples are the Momentum Africa Real Estate fund or the Actis Africa Real Estate Fund.

Investing in raw materials

You can also choose to invest in raw materials. When you trade in raw materials on the market, you can’t be sure where they originate from. In other words, you invest only partially in Africa.Nevertheless, it can be interesting to actively speculate in raw materials. Because raw materials are becoming increasingly scarce, there is a good chance that you will be able to achieve a positive return in the long term. Would you like to know more about investing in commodities? Then read our special on the subject:

Microcredit

If you also want to do something good for the world, you can provide microcredit. A microcredit is a small loan that helps local residents to set up a small business. The interest rate on a microcredit is relatively low, which does not make it the best investment.

Why can it be smart to invest in Africa?

There are many developing countries in Africa. All over the world you see that prosperity is increasing and that people are getting more and more money to spend. Africa, too, is no exception to this trend: there is still a lot of work to be done, but something that is still small can also grow rapidly. As a result, there are still plenty of opportunities to achieve a high return in Africa.

Moreover, it seems that African leaders are starting to cooperate more and more. 54 of the 55 states on the continent (only Eritrea is not participating) have joined the African Continent Free Trade Area. The area is home to 1.2 billion people and its gross domestic product totals USD 2.5 trillion.This new agreement may be successful: at the moment, most trade still takes place along lines of colonial origin. Most exports from Africa are going to Europe. The fact that trade tariffs within Africa have now largely been brought to zero means that trade between African countries can be boosted, which is, of course, good for business within the continent.

investing in Africa

Young population

The relatively young population also offers opportunities. The continent is home to many young people who can work. Because wages are low, companies can produce products cheaply. The average hourly wage in Africa is only 50 cents, with people in Mozambique receiving 0.34 dollars and people in Nigeria 1 dollar 62. This contrasts sharply with America and Europe, where companies have to pay multiples of these amounts.

Raw materials

Another good reason to invest in Africa is its rich resources. There is a lot of cobalt in the Congo, for example, and there is also plenty of building space. All this can contribute to a great success for Africa, where you can still buy shares relatively cheaply.When you invest in Africa, you also directly help the countries to build a stronger position. An investment in Africa can therefore be an ethical investment!

What are the risks of investing in Africa?

Investing in underdeveloped countries always involves risks. You must therefore be extra vigilant when investing in Africa.

Untrustworthy governments

Corruption is the order of the day in Africa. This can lead to unexpectedly higher costs for companies. Moreover, there is a lot of instability: a war or famine can seriously erode returns in a region. That is why it is particularly important to spread investments in Africa.

Moderate infrastructure

Infrastructure in Africa is still very limited: yet it seems to be slowly improving. If African countries improve the infrastructure, they will be able to trade more easily, which is good for the profitability of companies.

Investing in Africa

What are known investment funds in Africa?

The best way to invest in Africa is to invest (part of) your assets in an investment fund. There are various investment funds that focus on the African market.

An index fund you can invest in is the Market Vectors Africa Index Fund. This index fund follows the Dow Jones Africa Titans 50 and helps you to invest widely in Africa. If you invest in this fund, you invest in companies that are listed on the African stock exchange and in companies that generate more than 50% of their turnover in Africa.Are you looking for a method to invest in a specific African country? In that case, you can invest in the iShares MCI South Africa Index. This index tracks the economy of South Africa: economically one of the most stable countries on the continent. Another fund that follows a specific African country is the Market Vector fund for Egypt.Finally, you can also invest indirectly in Africa. For example, it is possible to invest in the currency of South Africa. You can then estimate whether the exchange rate of the South African Rand will increase or decrease. You can also invest in commodities where you can buy raw materials that are common in African countries. All in all, there are plenty of opportunities to invest in Africa!

Investing in Africa

Investing in Africa: 3 important tips

You can make a lot of money by investing in Africa, but you have to do it right. We would like to give you three important tips to invest responsibly in this continent for the highest possible return.Tip 1: take additional investment risks into account. After all, the continent of Africa is less stable than, for example, Europe. If you invest in Africa, it is good to take some extra risks into account.Tip 2: Stay calm when things are going so well with your investments. If you invest with emotions, you are more likely to make the wrong investment decision. If things are not going well, stay calm. When things are going very well, also stay calm. Euphoria is also not good for the wise investor.Tip 3: only invest money that you can afford to lose. It is unwise to invest your entire capital. If you unexpectedly need money, it is not easy to get it back once you have invested it. That’s why you only invest money that you can really spare and always keep some assets in your bank account.

How can you invest directly in Africa?

You can invest in Africa by opening a free account with a broker. At a broker, you can buy different shares with one click. It is also possible, for example, to buy a participation in an investment fund at a broker. Without opening an account with a broker, it is not possible to invest in Africa.

How to invest 10,000 pounds of your savings?

Do you have 10,000 pounds in your bank account that you do not actually use? Of course that is great, but also a bit of a waste. You could also make your money work for you and grow your assets considerably in the short term. All you must do is invest those 10,000 pounds in the right investment products. In this article, we will discuss the best 14 ways to invest £10,000 in savings.

How to best invest 10,000 pounds of your savings?

Thanks to the rise of the internet, there are more ways than ever to put your money to work. Before you decide to invest in any of the 14 options on this page, it is important to remember that investing is a commitment. Patience is the most important weapon of every investor: if you invest money consistently, you can build up a large amount of capital in the long term.

Option 1: Trading on autopilot

Good amounts are earned on the stock market every day: You can achieve high returns by smartly buying & selling shares. 10,000 pounds is a good amount to start trading shares. However, if you do not have sufficient knowledge, it may be better to ignore the stock market.Fortunately, there are platforms where you can use the knowledge of other investors. A comparable service can be compared to the ‘Twitter’ of investing: You copy the investments of other talented people so that you do not have to make the difficult decisions yourself.A good platform for copying investments is eToro. At eToro you can use social trading: You can immediately see what investments someone is making. Because the platform provides sufficient information about the investor’s performance, you can determine whether the strategy is right for you. For example, investors differ greatly in the extent to which they take risks.You can try this  way of investing completely free with a virtual demo. Use the button below to open a free account with eToro:

copy investing 10000 euros

Option 2:  Buying shares yourself

If you are not afraid to buy shares yourself, it can also be an interesting way to get started. Even with an amount of 10,000 pounds, it is important to spread your opportunities as much as possible: you do this by investing in different regions and sectors. When one sector or region is underperforming, the favourable results in another region can boost your investment results.Incidentally, it is smart not to invest the full 10,000 pounds immediately. You can choose to invest a certain amount in shares every month or every year. That way you avoid getting in at the wrong time: if you do this, it can take a long time before you achieve a positive return.It is also important to research the companies you want to invest in sufficiently. You can do this yourself by looking at the company’s financial data. You can also choose to get advice on a site like Fool.com: for a monthly payment, you can receive buying tips there.A good and reliable party where you can buy shares without commissions is eToro. Use the button below to immediately open an account with eToro and try the possibilities:

Option 3: Invest in a fund

Do you have 10,000 euros, but do not have the time or motivation to keep an eye on the stock markets yourself? Then you can also choose to invest money in a fund. Many people opt for an actively managed fund with their bank: this is often not the best choice. Active funds rarely beat the market, while the management costs are high.Consequently, it is smarter for most people to buy an index fund or ETF. An ETF is a fund that is traded on the stock exchange that you can buy & sell at any time. With an ETF, you can invest in anything and everything: many people choose to track an index like the S&P 500 or Dow Jones. However, you can also choose to invest in a specific sector (for example the gaming sector) or in a special region (Russia).Because an index fund is passively managed, you do not pay high management costs which increases your potential return. By periodically investing an amount, you also prevent yourself from investing all your money at the wrong time.Do you also want to invest (part of) your 10,000 pounds in savings in a fund? Then it is advisable to create an account with DEGIRO. At DEGIRO you do not pay any purchase and sale costs for funds from the core selection:

Option 4: Lend money to acquaintances

£10,000 is a nice amount of money with which you can help someone else. For example, is there someone in your family who wants to start a business, or do you know a family member who needs help buying a house? Then you can achieve a good extra return by lending the money.Lending money to acquaintances has the necessary advantages: the borrowing party is not bothered by the restrictions imposed by a financial party and because there is no third party in between, you can achieve a higher return as a borrowing party.It is of course particularly important to only lend your money to a reliable party. Even if you know the other person well, it is wise to contract everything properly. Quarrels and conflicts regularly arise due to money problems.Alternatively, you can choose to lend your money by using P2P borrowing. There are various platforms where you can lend money to other parties. The platform then ensures that the payments are properly executed. Also, with P2P platforms you have to be careful: in the past it often happened that a party did not pay. Examples of these types of platforms are Fast Invest, Mintos and Lender & Spender.

Option 5: Cryptocurrencies

You can also choose to invest part of the 10,000 pounds in crypto coins. I would not recommend to most people that they invest all their savings in the cryptocurrenies. There is still too much uncertainty about the future of most crypto coins and the price can collapse ten percent or more in one day.Having said that, an investment in a crypto coin can work out very well. New coins sometimes increase in value by 100 percent or more within a few days. That way you can achieve an extremely high return.If you do not mind actively trading, you can achieve a much higher return with crypto coins. You do this by responding directly to the latest news. If, for example, a certain crypto coin has recently been embraced by a large party, this can immediately give the price a significant boost.When you start investing in cryptos, it is particularly important to carefully research the underlying party. Not all crypto brokers are equally reliable: avoid losing a substantial amount because the company behind the crypto coin runs off with your money.investing 10000 pounds savings

Option 6:  Actively speculate

You can also choose to actively speculate on price changes on the stock exchange. Many people buy stocks and hold them for a longer period, so you can expect a long-term return of six to eight percent. If you actively speculate in a smart way, you can quickly achieve six to eight percent in return on one investment. Of course, you can also lose your entire investment in one fell swoop by actively speculating. Therefore, it is important to only choose this option if you know what you are doing.Many people who actively speculate use technical analysis: you then look for horizontal levels that the price regularly responds to. By cleverly responding to this, you can build a good strategy with which you can regularly achieve a good return.A good way to invest actively is to use CFDs. With CFDs, you can also open short positions with which you achieve a positive result when the price falls. You can also apply leverage so that you can invest up to £300,000 with £10,000.You can try speculating on the stock market for free with a demo at eToro. It is certainly advisable to first test whether speculation suits you: that way you avoid big losses. Use the button below to open a free demo at eToro:

Option 7: Move money to an offshore bank account

If you do not want to actively invest, but still want to achieve a higher return with your savings, you can choose to transfer your savings to a foreign bank account. In Europe, bank accounts only yield a limited return: It is undoubtedly smart to switch to other banks that offer a higher interest rate.It is important to choose a bank that is covered by the deposit guarantee scheme. This system guarantees that you will not simply lose the first £100,000 on your account. Banks abroad may be less reliable, which makes it extra important to watch out for this fail-safe.There are various comparison websites where you can immediately see at which bank you receive the highest interest. For Europe, you can look at Raisin, for example.

Option 8: Invest in real estate

Historically, real estate has always been a smart investment. Of course, real estate has also gone through difficult times: The housing crisis of 2008 clearly showed that real estate will certainly not only increase in value. Yet, the demand for houses will not just disappear as people still need a place to live.Investing 10,000 pounds in real estate is therefore an interesting option. Unfortunately, 10,000 pounds is not enough to buy a property yourself. When you can buy a property yourself, you benefit from rental income, and you can also achieve a positive return when house prices rise.However, you can invest in real estate projects of other parties with 10,000 pounds. You can do this, for example, by investing in a real estate ETF or by buying shares in a company that is active in the real estate world. You can also look for a real estate project yourself: this can be riskier, as these types of constructions are often not subject to a supervisory authority.When you invest in real estate, it is still important to stay sharp. There are plenty of unreliable figures on the market and not every real estate object is equally interesting. Therefore, always investigate whether the property in which you are investing can yield a good return. In addition, keep an eye on the economy and avoid investing in real estate just before a new bubble bursts.

Option 9: An investment in yourself

With 10,000 pounds you can also choose to invest in yourself. For example, with 10,000 pounds you can (partially) complete a university study. Sure, you are not going to graduate from Oxford or Cambridge for that amount. This does not alter the fact that extra academic knowledge can give your salary a significant boost. Also, on the internet you can find various courses that can teach you new skills.Not all these courses cost 10,000 pounds: sometimes you can learn enormously valuable skills for a few hundred pounds. An investment in yourself is never really wasted. Make sure you invest your money at a party that is really knowledgable in a certain area. You can also find many people on the internet who are selling courses on getting rich and who are only getting rich by selling the courses.

invest10000 pounds

Option 10: Invest in bonds

Bonds can also be an interesting investment. However, due to the low-interest rates, an investment in a bond is rarely the best option: The interest in shares has increased more than the interest in bonds.Despite this situation, you can still choose to invest part of your assets in bonds. Especially in uncertain times, it is nice to be able to count on a somewhat steady income in the form of interest. If you dare, you can also buy bonds from companies that pay a higher interest rate.

Option 11: Start a business

Starting a business can be the best investment you can make. With 10,000 pounds you can certainly make a good start. With the rise of the internet, you even need a lot less money to achieve a good result with your company.For example, it can be interesting to start an online blog. A while ago, for example, I helped my mother set up a gardening website. Nowadays, she receives tens of thousands of visitors per month on her website, leaving her with a nice additional income. The total investment for this company was only a few pounds, so the return amounts to thousands of percent.Thus, if you have some time and money to spare, you can start an online blog. This is not very difficult and if you manage to attract enough visitors you can make a nice profit with it. It is smart to choose a topic that you are extremely interested in and that you enjoy writing about.When you invest in setting up a business, you must take into account that you also have to invest a lot of time. Starting a business is therefore certainly not for everyone.

Option 12: Repay debts

Do you have 10,000 in savings and are you still in debt? Then it is smart to pay off the debts first. After all, by paying off your debts, you immediately receive a return. When the interest or your debt is six percent, you earn six percent on an annual basis by paying off the debt.It is therefore unwise to invest in, for example, shares when you still have debts. You must achieve a very high return if you want to improve on the bottom line. Only when you earn more than six percent on an annual basis would you achieve a positive result in this case.Therefore, only invest with money that is yours & that you can spare. That way you achieve the maximum return with an investment of 10,000 pounds.

Option 13: Sell products

Another way with which you can earn extra money is by selling products over the internet. You can do this on a small scale via, for example, eBay: by buying up products smartly you can then sell them at a profit. However, there are more attractive ways in which you can get positive returns from buying and selling products.An interesting new way to make money is drop-shipping. With drop-shipping, you sell the products of another party under your name. Within this business concept you do not have to build up stock yourself: you are only responsible for the marketing.When you have found a product that is performing well, you can also stock up for 10,000. Note that it can be difficult to compete with other large webshops with a comparable amount. It is therefore highly recommended drawing up a clear plan before you start buying and selling products online.

Option 14: Buy gold or other raw materials

You can also choose to invest your money in a commodity like gold. Gold is often seen as a safe investment product: You can see that gold performs especially well when there is a lot of uncertainty about the economic future.Some people choose to always include some gold in their investment portfolio. This way you hedge against risks in an economic crisis: when things suddenly go less well, the profits from your gold compensate for the losses you make with your shares.When you have more time to think about your investments, you can also trade gold more actively. Sell ​​gold when a new record price hits, and buy gold when uncertainty in the financial markets increases. You can also choose to invest in other commodities like oil and silver.

Think & plan ahead

It is important to plan well in advance when you are going to invest with an amount of 10,000 pounds. For example, make sure you keep enough money on hand to solve any problems. In this way you avoid having to sell your investments at an unfavourable moment, resulting in a negative return.It is also important to clearly define your time horizon. Some people invest mainly in the short term while other people are busy building a pension. The strategy that works best for you depends a lot on your personal preferences and goals.

How long does it take to double 10,000 pounds?

When you invest money on the stock exchange, you can double the money at a given moment to 20,000 pounds. It often takes less time than you think to double your money: this is due to the phenomenon of return on return.When you achieve a 10% return on your shares, and you reinvest this amount in stocks, you will also receive a return on your profit. That way your return grows exponentially which is good for your investment results in the long term.How long it takes for your investment of 10,000 pounds to double depends on your return. At an average return of 8%, it takes 9 years for your assets to double, while at 4% it takes 17.7 years. As you can see, a few percent can make a big difference! It is therefore important to always invest at a low cost: this increases the speed at which your money doubles in value.Do you want to know where you can invest the cheapest? On our page about cheap investing, you can read everything you need to know:

Risk profile

Before I finish this article about investing 10,000 pounds, I would like to discuss the risk profiles. Risk and return are linked: as an investor, you receive a reward for the risk you take. Fortunately, you have full say in the level of risk you are willing to take. We often distinguish three levels:
  • Defensive: where you invest in safe investment products such as bonds.
  • Neutral: where you invest in a mix of investment products.
  • Offensive: where you invest in riskier products.
With the riskier investment products, you are expected to achieve a higher return over the longer term. Certainly, in the shorter term you can also lose a lot more money with this type of investment. It is therefore important to choose a risk profile that suits you.

Conclusion: What should you do  with 10,000 in savings?

Do not get discouraged because you only have 10,000 pounds in savings. Wealth must start somewhere and by starting to invest your money smartly today you can build up a big sum of money in the future.

As you have read in this article, there are various methods for investing smartly with 10,000 pounds. It can certainly be smart to combine the different options: that way you diversify, and your results become less volatile.Do stay sharp when you are going to invest via the internet: not every company wants the best for you. When something seems too good to be true, this is often the case. Avoid getting scammed and draw up a comprehensive plan: that way you will achieve the best result.

4 investment tips to smartly invest  10,000 pounds

We are happy to help you invest your 10,000 pounds in the right way. We do this by giving four tips in this article to invest your assets smartly.

Tip 1: Determine your strategy

You can just put those 10,000 pounds in your bank account into a few random shares, but this is unwise. The most successful investors always invest their money with a certain strategy. If you really want to make a lot of profit with that 10,000 pounds in your bank account, it is wise to determine your investment strategy first.There are many investment strategies. Which strategy suits you best depends entirely on how you want to invest your money. Are you excited to take some extra risks? Then you choose an offensive investment strategy. Do you prefer security, safety and limiting risks? Then you can choose one of the many defensive investment strategies.

 Tip 2: Decide which investment products you want to invest in

Once you have determined your investment strategy, you must determine in which investment products you want to invest the 10,000 pounds. You can invest in shares, but also in real estate, in gold, in a foreign currency or in options. Which investment products you choose depends, among other things, on your investment strategy.It is wise to invest in multiple investment products. By spreading those 10,000 pounds over several investments, you spread your opportunities and your risks. If things go less well with one investment, this loss is offset by another investment that performs better.investing 10000 pounds

 Tip 3: Compare brokers

After you have decided which investment products you want to invest in, you still need to find a broker where you can make the investments. By comparing various brokers, you will automatically find the cheapest provider. This is important, because with low investment costs you will have more money left as profit.Please note that not all brokers are equally reliable. Always work with a reliable broker, especially if you are going to invest 10,000 pounds with this party. If you invest your money with an unreliable broker, you run the risk of losing your assets, which you obviously want to prevent.Do you want to know with which brokers we like to invest ourselves? In our overview of the best brokers, we discuss the different possibilities:

Tip 4: Evaluate and learn

Finally, it is wise to regularly evaluate your investments. What is your interim profit? Which investment products perform well, and which investment products perform less well? Which investment strategy brings you the highest profit?By asking yourself these questions, you can potentially improve your investment strategy. If you discover ways to improve your investment strategy, you can make even more profits with your investment of £10,000. We certainly recommend that you take a close look at your investments from time to time.

The history of investing

Investing, you’re probably hearing more and more about it. A few years ago, only large companies were involved in investing, but nowadays, this is different. An increasing number of consumers are choosing to have their assets work for them by starting to invest.Because they’ve only been hearing about investing for a few years, many people think that this phenomenon is relatively new. The opposite is true actually; the history of investing goes back several hundred years. Are you curious about what this history looks like? Read on because on this page you can learn more about the history of investing.

The first issue of stock

As mentioned before, the history of investing goes back hundreds of years. The first stock was issued in the time of the Verenigde Oost-Indische Compagnie (Dutch East India Company) (VOC). Before that time, investments were made but not like the ones we are used to now. The first real stock – which was neatly listed and included a certain return – were therefore issued in the time of the VOC.The VOC needed a lot of money to go on trade missions. The trading company itself had a lot of money, but not enough to be able to pay for all the expensive trade missions. That is why it was decided to issue stock. The public got the chance to invest in the VOC and earn an attractive return, and the VOC collected enough money to set off with many ships.VOC stock history

Investing in the stock market for the first time

The first stock was issued in the time of the VOC, but in those days there were no stock exchanges. When more and more trade in stock and goods took place, the need arose to establish a central trading place. The first trading place in the Netherlands was established in 1611 in Amsterdam. Much later, in 1851, the Amsterdam Association for the Securities Trade was established. This association had to regulate the stock trading, which was already quite large at that time.Markets were established not only in the Netherlands, but also in other countries. In the United States, for example, the Dow Jones Industrial Average was launched in 1896. This is the oldest share index in the United States. The Dow Jones is still very important in the US.

VOC stock priceThe development of the stock price of the VOC, the first stock

Recent developments in the investment market

The investment market has developed considerably over the years. First of all, there are a lot of new investment products, including options, CFDs and even Bitcoins. For several years it has also been possible to invest money online. Because of this development in the investment market, investing has become increasingly popular among the ‘ordinary’ consumer. In the past only the richest people invested money, but this is now possible for everyone.We are curious what the investment market will do in the future. Possibly there will be more investment products and there will be even more ways to invest your money. If we look at the first issue of stock and the investment market now, clearly a lot has changed.

Beurs van Berlage first stock marketA lot has changed since the arrival of the first stock market. What will the future bring us?

What is a margin call and how do you prevent it?

If you invest in derivatives such as CFDs, chances are that sooner or later you will come into contact with the term ‘margin call’. But what is a margin call? A margin call is a situation where there is no longer enough money in your trading account. Your trading position can then be closed automatically. In this article you can read what investing on a margin is. We also discuss how you can avoid a margin call.

How does investing or trading on margin work?

Many brokers offer the possibility to trade on margin. When you trade on margin, you only have to deposit a small part of the total investment. The remaining amount is financed by the broker. When you invest on margin, you apply a leverage: with a smaller amount you open a larger investment position. It is then possible to open an investment of, for example, $500 with an amount of $100. When you trade on margin you have to pay extra attention.

The margin on your position

The margin that you are allowed to use differs from broker to broker. When the maximum leverage is 1:5, it means that you have to deposit 20% of the investment yourself. So, if you want to buy Google shares for $10,000, you’ll have to deposit $2,000 yourself. The remaining $8,000 is then deposited by the broker.In this case, you only risk $2000. However, you can achieve the same investment results as you would with an investment of $10,000.margin Plus500

The required margin is often indicated by a broker

The maintenance margin

The broker expects you to have enough money in your account to cover your trading positions. When you use a margin of 500%, the broker puts in five times as much money. The price only has to drop by 20% before your full deposit is gone.Brokers therefore use a so-called maintenance margin. The maintenance margin indicates which part of the value of the total investment should always be present on your account.If the maintenance margin is 10%, you must always have at least $1,000 in cash in your account for an investment with a value of $10,000. This amount may consist of profits from other investments or from your assets. If you do not meet this requirement, you may have to deal with a margin call.

What is a margin call?

You will receive a ‘margin call’ when there is no longer enough money in your account to keep the existing positions open. This happens when the value of your account has dropped more than is allowed according to the maintenance margin. Current gains on another investment can also be used to meet the maintenance margin of your investments. If the value of your account falls below this level, you may have to deal with a margin call.The meaning of a margin call is simple: the broker then asks you to deposit more money. If you don’t do this and the result of your position doesn’t improve, you can lose the entire position. The broker can then liquidate all your investments to ensure that you meet your margin requirements again. When you start investing on margin, it is important to keep these risks in mind.

Example of a margin call

Let’s say you deposit $1,000 into your account, and you open an investment with a value of $5,000. In this case, you use a margin of 500% or a leverage of 1:5.  When the share decreases 10% in value, you lose $500. After all, you ended up buying $5,000 worth of shares. When the maintenance margin is 10%, you may already be in trouble. After all, you no longer meet the margin requirements.To keep your position open, you have to deposit more money. When the money in your account gets close to $0, the broker will execute a margin call. If you don’t deposit money, the position is usually automatically closed. It is not possible to lose more money than you deposit in your account.If you have multiple current investments with a broker, the result of investment A can influence investment B. Suppose you are still in the loss-making investment in the example above. However, you have also invested in another share with $1000, and you have applied a margin of 500% here too. However, this share has increased by 10%. The current profit of this share compensates for the loss at the other position. In this case, you would not receive a margin call.So, when you open multiple positions, you have to be careful. One position that performs very poorly can cause all trades on your account to be closed. You won’t be the first trader to blow up his entire investment account because of a margin call.

Explanation of how margin calls work

How can you avoid a margin call?

It is wise to avoid a margin call. After all, with a margin call, you lose all the money in your account and your positions are automatically closed. You can avoid a margin call by making sure there’s always enough money in your account.A good tool that can help you with this is the stop loss. With a stop loss, you can set a value where your investment is automatically closed. Read more about using a stop loss here.margin explanationWithin your broker account, the following numbers are typically displayed. The balance is the amount that’s in your account. Your equity is the current value of all your trading positions. The value of your trading positions consists of your deposit plus open profits and minus open losses. The  margin is the minimum amount that should be present on your account to prevent a margin call. The  free margin is the amount you can still use for new investments.

What are the costs of investing on margin?

Trading or trading on margin is not free. You pay a funding interest on this. You pay this interest for every day you keep the position open. When you trade on margin you need a higher return to achieve a positive result. In this article we explain how these financing costs are calculated.

Set a guaranteed stop

You can protect your positions with a guaranteed stop. A guaranteed stop automatically closes your position when it decreases to a certain value. By setting a guaranteed stop, you can limit your loss on a certain position.A guaranteed stop is often more expensive than a normal stop loss. With a normal stop, you can still lose more money within a very volatile market. With a guaranteed stop order, the broker guarantees that your position will be closed at the declared value. It is therefore especially advisable to use a guaranteed stop loss for very volatile securities.

CFD trading: a short introduction

A Contract For Difference  (CFD) is a financial product that allows you to benefit from a price increase or a price fall. A CFD is a contract between a buyer and a seller. The difference in value of the underlying security determines your profit or loss. This result will be settled as soon as the contract is closed. CFDs have a leveraging mechanism. This means that you can take a large position with a relatively small deposit.
Please note that if you buy a CFD, you will not become the owner of the underlying share. You simply speculate on a price rise or a fall in the share price.

How does inflation affect the return?

There are various issues that influence the return on your investments. One of the factors that affect your return is inflation. In this article you will read what inflation means exactly, what the influence of inflation is on your investment return and how you can protect your return against inflation.

What is inflation?

If there is high inflation, the price level in a particular country increases. This means that the general prices in that country become slightly higher, for example in the supermarket or in a restaurant. With high inflation you can buy less for the same amount of money, for example 20 pounds. Inflation decreases the purchasing power of money. Because your money is worth less, you can buy less.Effect of inflation

Inflation and the return on your investments

Inflation can rise or fall. If inflation is high, you will not only notice this with your purchasing power. You can also see this reflected in the return on your investments. If there is high inflation, your money is generally worth less. You can buy less with the same money.If money is worth less, your capital is also worth less. The return you have achieved with your investments is therefore less valuable in practice than in theory. You may have 1000 pounds return, but you can do less with this than you could if there been low inflation. In short, high inflation creates a depreciation of money and therefore a lower return on investment.Inflation investing

Protection against rising inflation

It is wise to protect your investment return against rising inflation. By protecting your return against inflation, you ensure that no money is lost due to an overall rise in the price level.There are various investment products that protect your return against high inflation. These products are briefly described below. If you want to protect your return against inflation, then invest in one or more investment products below.

Commodities

Raw materials such as metals, oil and agricultural goods offer good protection against inflation. The only disadvantage of investing in commodities is that many commodities are difficult to evaluate.

Real estate

If you have a bit more budget for your investments, you can also choose to invest in real estate. However, it is important in this case to calculate the higher inflation in your selling price or monthly rental price. If inflation is higher, you have to ask for more money for your property. If you do not do this, then real estate is not a good protection against high inflation.

Inflation-linked bonds

Finally, you can also choose to invest your assets in inflation-linked bonds. These funds provide direct protection against high inflation, unlike other investment products. The issuer of this debt paper guarantees 100 percent protection at higher inflation, which makes this investment product the best protector against currency devaluation.

What happens in case of low inflation?

The Bank of England aims for an inflation rate of two percent on an annual basis. However, inflation may be lower than this percentage. Low inflation also has consequences for your investments. Low inflation leads to lower interest rates. These lower interest rates mean that people are more likely to invest. After all, they are not satisfied with the return on bonds and savings accounts.When people make more investments, the demand for securities increases. If supply stays the same, the prices will rise. Low inflation therefore often leads to rising stock prices. When this is the case, it is therefore wise to buy stocks.

What is an economic boom?

As an investor, you may come in contact with the term ‘boom‘. This is an economic concept that is regularly used in the world of investing. Do you not know what a boom is? Read more about this phenomenon in this article.

What is a boom?

A boom is a situation where you see a huge demand for certain products or services. This increased demand can be for a particular investment product as well such as a specific stock.  A boom is part of the business cycle of an economy. The business cycle includes the low and high points in the economy.A boom can occur at one of the many high points in the economic cycle. When the economy is doing well, the demand for specific product and services can increase causing certain shares to rise considerably.

How can you speculate during a boom?

Do you want to speculate on the stock market during an economic boom? With a broker like eToro you can open CFD trading positions on both rising and falling prices. If you keep a close eye on developments, you can respond well to them. Would you like to try active investing for free with a demo? Then use the button below to immediately open an account with eToro:

The result of a boom

If there is a lot of demand for a specific product, a particular service or a specific investment product we can sometimes speak of an economic boom. In the case of a boom, the demand for a product, service or investment product gets so high that the price is often no longer in proportion to the underlying value. This means that you have to pay a lot more for this product, this service or this investment product than it actually is worth.As a consequence of an economic boom, a bubble in the economy may arise. This does not always happen, but the risk is certainly present. If the price continues to rise and there is no decline, the chance of a bubble is large.

boom 20sThe roaring twenties was a period in which there was a boom.

A boom and a bust

The opposite of a boom is a bust. During a boom, the prices of a product, service or share increase considerably, but during a bust the prices of a product, service or share become very low. If there is a boom in the investment world, you have to pay ridiculously amount for a specific stock. If there is a bust, you can simply snatch it up for a low price.Especially during a boom it can be wise to sell and a bust can be a good buying opportunity. It is not always wise to follow the crowd blindly, especially when there is a lack of critical perspective.

An example of a boom

To explain the phenomenon even more clearly, we’d like to give an example of a boom in Dutch history. During the Golden Age there was a tulip mania. There was so much demand for tulip bulbs that the price of these bulbs rose considerably. We all know that tulip bulbs are not worth millions of guilders, but during the tulip bulb boom the bulbs were sold for this price.The tulip bulbs boom could arise because it was very attractive to buy tulip bulbs. Initially, this had to do first with the value of the bulbs, but later also with the social status that it gave the owner. This social status was again caused by the high value of the bulbs. Due to the high demand for tulip bulbs, there was a so-called Tulip Mania. Eventually, tulip bulbs were worth millions of guilders. Only after a correction did the bulbs regain their original value and the tulip bulb boom had passed by.Question: What do you think? Are cryptocurrencies the classic example of a boom?

From boom to bubble

A period of economic boom can lead to a bubble that bursts with severe consequences. You could witness this during the famous technology boom in the late 90s. The internet was just emerging and people were running to the stock market to buy shares in various technology funds.In the end, many companies were unable to live up to the high expectations, after which the stock exchange took a big hit. It is therefore important to be vigilant when stock prices rise to new, high levels. Always wonder if the surge is justified or if it is only driven by greed and false hope.

Growth itself is good

Economic growth or an economic boom is of course not wrong in itself. The economy always moves in so-called cycles in which very positive periods regularly alternate with less positive periods.It is important to keep both feet on the ground during ascents. Ask yourself what driving force is behind the boom and whether it will continue. By doing so, you avoid suffering a big loss by following into the mass hysteria.  

Investing in a warrant

There are many different ways to grow your assets by investing in certain investment products. A relatively well-known investment method is investing in stocks, while a fairly unknown investment method is investing in warrants. Because this investment method is still unknown, we’d like to explain the method in this article.

What is a warrant?

Warrants are derivates, or derivative investment products. A warrant has an underlying value, for example a stock, a bond or a currency. The price of the investment product has been set in advance. This price is also called the exercise price.If you buy a warrant, you have the right (not the obligation!) to buy or sell an investment product before a certain date. The end date of the warrant is also called the expiration date. As a warrant holder, you may choose whether or not you wish to make use of this right. Please note: the right to buy or sell can only be exercised within a predetermined period. If this period has expired, the right will lapse and your warrant will be worthless.In order to be able to buy a warrant, you pay a certain premium. This premium is part of the underlying value of the warrant.Investing in a warrant

Two types of warrants

There are two types of warrants. Firstly, there is the warrant that rises in value if the underlying investment product, for example the share, also increases in value. These warrants are also called call warrants. As a warrant holder of a call warrant, you have the right to purchase the underlying value of the item at the exercise price, or the predetermined price of the warrant.Then there is the warrant that increases in value if the underlying investment product falls in value. If the underlying product – such as the stock – is worth less, you earn money. These warrants are also known as put warrants. If you have a put warrant, you have the right to sell the underlying asset at the exercise price, or the predetermined price of the warrant.

Warrants and options

Warrants and options are often confused. This is not surprising because warrants and options are very similar. Yet there is an important difference between the investment products. Warrants are actually issued by a bank or institution and options are issued by the stock exchange.

Investing in warrants

If you want to invest in warrants, you should look for a broker who offers this investment product. There are several reliable brokers who do this, including Binck. Before investing money, consider what kind of warrant you want to buy. This can be either a call warrant or a put warrant. Then you compare various warrants to each other to buy the best warrant. Now the trick is to make a profit with this investment by buying or selling the warrant at the right price.

How do the bid and ask prices work with investing?

When you invest, you automatically have to deal with the bid and ask prices of investment products. Are you a novice investor who has never experienced this before? Then it is not surprising that you do not know what bid and ask prices are. We therefore devote an article to this subject especially for the novice investor.On this page you can read not only what the bid price of an investment product is, but also what the ask price is. You can also read on this page exactly how bid and ask prices work when investing. With the information in this article, you can start investing in the right way.

What is the bid price?

The bid price of an investment product is the maximum price at which a buyer is willing to purchase the investment product in question. If 10 pounds is bid on a share by buyer X, 10 pounds is the bid price of this buyer. If buyer Y bids 11 pounds for the share, 11 pounds is the bid price of this buyer.

What is the ask price?

The ask price is also called the offer price. This is the price for which a specific investment product is offered for sale. This can be a share, a security or a bond. If the seller requests 12 pounds for a specific investment product, this is the ask price of this seller.bid and ask prices investing2

Carrying out a transaction

If a buyer wants to pay the ask price or offer price for an investment product, a transaction will be made. In this case, the buyer pays the ask price that the seller has set for the specific investment product.If the seller accepts a different bid price for what he wants to sell, a transaction will also be concluded. This bid price may be lower than the ask price. This means that the buyer is more profitable, but the seller earns less on the specific investment product he sells. The seller determines whether or not he agrees with a lower bid price.It may be that the sellers agree, but it is also possible that the sellers do not agree. This depends, among other things, on the popularity of the investment product concerned and the current situation on the investment market. At a market attractive to the seller, he will not sell his product quickly below the asking price. If the market is less attractive to the seller, this will happen sooner.

The difference between the bid and ask price

In the investment world, the difference between the bid price and the asking price is also called the spread. The spread may relate to a stock, but also to an option, a turbo or a bond. All investment products that are offered for a certain ask price and where a certain bid price is offered by a buyer have a spread.It is interesting for investors to keep the spread, or the difference between the bid price and the ask price of an investment product, as small as possible. If you want to invest in an investment product, you always see what the spread of this investment product is. It is important to invest in a product with the lowest possible spread.

Who invests in futures?

Besides Forex, there are still many liquid markets that traders can make invest in. One of these markets is the futures market. Futures are being traded on every exchange, both by hedgers and by speculators. This is because of the liquidity and the amount of options futures offer. The futures market is an interesting possibility for traders who want to increase their available capital by applying leverage.

What is a future?

A future is a contract between two parties where the transaction is executed at a certain date. At that time, one party can then buy or sell the underlying property from the other party. With a future, both parties have a duty to execute the transaction, while with an option that right only belongs to the buyer of the option. Besides that slight difference, options and futures are quite similar financial instruments.Do you want to invest in futures yourself? This is possible with a broker. Use the button to instantly compare the best brokers:

What are the benefits of a future?

A future has several benefits. Thanks to leverage, it’s possible to take a sizable position, even if you only have a small investment capital available. This is possible because only a small part of the value of a future needs to be paid. The amount varies between 5 and 20 percent of the total value.Because of the high liquidity of the market it is often possible to quickly buy and sell a future. Moreover, it’s also possible to open a short position with a future, which makes it possible to speculate on a decreasing stock price.

Which parties invest in futures?

Futures are useful tools for speculators and hedgers. Hedgers use futures to protect their portfolio. With a future, it is possible to fix a price and buy the underlying instrument at a cheaper price when the rate decreases. As a result, futures can be used to protect a portfolio: in case of a falling price, you can then use a future as an insurance policy.Institutional investors and companies make extensive use of this opportunity. For example, companies use futures to reduce the uncertainty around commodity prices. With a future, they know in advance at what price they can buy a certain commodity, preventing them from getting into trouble when the price rises.Speculators, on the other hand, use futures to make money from their vision on the future. Depending on the time between buying and selling of the futures, a speculator is classified as one of three types of speculators: swing traders, day traders and position traders.

Trading futures is risky

Traders need to remember that futures are a form of derivatives. The potential return is higher than with stocks, but the risk should not be underestimated. Always set limits when trading futures to prevent your entire deposit from evaporating.

What are derivatives?

Are you looking for higher than average returns? Then shares or bonds might not be the best choice for you. With derivatives you can potentially achieve higher returns. In this article you can read everything you need to know about derivatives. We discuss what derivatives are and we take a look at the different types of derivatives that exist.

What are derivatives?

Derivatives are financially tradable securities. The value of a derivative is determined by the underlying asset. For example, a derivative may relate to a share  or a commodity. The value of a derivative is derived from the underlying asset.With a derivative you can trade in a share or commodity without actually having to buy or sell the asset.

What is the best method to invest in derivatives?

You can invest in derivatives by opening an account with an online broker. A broker is a party that makes it possible to speculate on rising and falling prices of derivatives.

eToro: buying and selling derivatives

Another good choice for investing in derivatives is eToro. eToro is a strong party where you can invest against low fees in CFD’s, ETF’s and options. Opening an account with eToro is free.eToro derivatives software

Plus500: trading in CFD’s

Plus500 is the best broker for trading CFD’s on shares, commodities, currencies and options. CFD’s make it possible to speculate on rising and falling prices. At Plus500 you can try out the possibilities for free with a demo. This makes Plus500 the most attractive derivatives broker. However, it is important to remember that 82% of retail investors lose money.Plus500 derivatives software

Illustrative prices

What type of derivatives exist?

There are many types of derivatives. In this section you can read more about the most traded derivative types.

CFD’s

CFD stands for contract for difference. This type of derivative makes it possible to trade in the difference of the price of shares, commodities, currencies and ETF’s. A big advantage of this type of derivative is that you can trade in all kinds of securities with smaller amounts of money. This derivative is relatively easy to understand, as the price of a CFD is equal to the price of the underlying security.Investing in CFD’s also carries the necessary risks. With this type of derivative you pay the spread directly, so you start with a negative result. When you trade in CFDs, it’s important to keep an eye on your margin requirements. If you do not meet your margin requirements, you may lose the full amount of your investment. Do you want to know more about CFD’s? Read our guide about trading in CFD’s:

Options

Another well-known derivative is the option. When you buy an option, you buy the right to buy or sell a certain security against a set price. An option always has a certain duration. When the maturity expires, the option may lose its entire value. You can use options to set up complicated strategic structures. The value of an option is more difficult to determine as it is not the same as the value of the underlying security.It is also possible to write options. When you write an option you will receive a premium, but you are then obliged to buy or sell certain securities at a set price. Writing options can be risky. It is therefore not advisable to write options when you have little investment experience. Do you want to know more about investing in options? Read our article about options:

Futures

Futures are very similar to CFDs. With futures, you can speculate on an underlying asset. In the case of a future, two parties come to an agreement to trade a certain number of securities at a certain price. A big drawback of futures is the fact that you need a lot of money to take a position. The point values are high, which can cause your losses to rise quickly. CFDs are therefore more suitable for the less wealthy investor.When a future expires you are obligated to take the security it relates to. If you own an oil future at the expiration date you will receive a set amount of oil barrels. When you trade in futures through a broker, they are usually closed before the actual delivery takes place. In rare cases, the price of a future can turn negative. This happened, for example, with oil contracts during the corona crisis.

Warrants

Warrants are very similar to options. However, unlike options, warrants are issued by a financial institution such as a bank. With a warrant you have the possibility to buy a stock at a certain price. Because warrants are issued by financial institutions, they can be more expensive.

Swaps

Swaps are derivatives used to deflect a risk. For example, swaps can set a certain exchange rate or interest rate. The opposing party obviously wants to be paid for this. Swaps are widely used in business. Thanks to the existence of swaps, companies can pass on certain risks at a premium. As a result, a company can survive a suddenly adverse exchange rate or interest rate.With a swap, it is possible to exchange a variable interest rate for a higher fixed interest rate. In this way, a company has less uncertainty about its financing costs.

Forwards

Another type of derivative are forwards. A forward is similar to a future, but is not traded through the stock exchange. The risk of a forward is therefore greater. If the counterparty is unable to deliver, you may lose the full amount of your investment.

Caps and floors

Corporations use caps and floors a lot. These are derivatives where the interest is determined within certain parameters. Parties that issue such a derivative pay a little extra if the interest rate goes outside the parameters. These derivatives are usually very pricey, but are excellent for the peace of mind of the management team.

The risks of derivatives

Derivatives are very popular. Nevertheless, they also have the accompanying risks. What are the biggest risks of investing in derivatives?

Presence of a leverage

Derivatives almost always have a leverage factor. Thanks to the presence of a lever, you can take a larger investment position with a smaller amount of money. The result of the use of a leverage is that smaller market movements are magnified. When a derivative has a leverage of one to ten, you can suddenly make a profit of $10 if the price of the underlying security increases with $1. However, when the price moves in the opposite direction, your losses are also multiplied.

Market risk

Derivatives are often freely traded on the exchange. This can cause the price of a derivative to rise or fall considerably. Is the economy doing badly? Then the value of the underlying security of a derivative is likely to decrease. The value of a derivative is linked to the underlying security: when the underlying value decreases, the value the derivative becomes less as well.

Risk of losing everything

With derivatives, you have a much greater risk of losing your entire deposit. When you buy a fund that tracks the Dow Jones, the chance that it will be worth $0 is almost 0. With many derivatives, however, you have a high chance of big losses. For example, an option can become completely worthless if it is out of the money at the end of the term.With a leveraged product, you can run out of money, and a margin call puts an end to your trading adventure.

Knowledge is key

When you invest in derivatives it is even more important to obtain adequate knowledge. Derivatives are complex financial products. When trading stocks, all you have to do is understand the stock in question. When trading a derivative on a share, you have to understand the stock and the derivative. This complexity is not something that fits all investors.

Counterparty risk

When you trade in derivatives through an online broker on an exchange you normally won’t have to deal with the counterparty risk. Many derivatives are, however, traded outside the regulated exchanges.A company can take out a swap to protect itself from high-interest rates. However, if the opposing party goes bankrupt, the company will not be able to benefit from the swap. In these types of deals between companies the creditworthiness of the counterparty will play an important role.

What makes derivatives so popular?

Derivatives are popular because they can be used to make big profits. A good example of a film that shows the power of derivatives is the big short. By using derivatives, you can get up to 30 times more returns within the same time frame and with the same stock market increase. As an investor, risk-taking is rewarded. However, with derivatives the fall can be much steeper.Derivatives have also become more popular because there are more and more brokers that have made trading derivatives possible. The software has become increasingly user-friendly, making the various derivatives increasingly accessible to the public.Investing in derivatives

What are the benefits of derivatives?

Derivatives can be beneficial for both investors and entrepreneurs. In this section we discuss the biggest benefits of derivatives.

The use of leverage

With many derivatives, you can apply a lever. With leverage, you can take a larger position with a smaller amount of money. Your potential profit, as well as your potential loss, increase when you use leverage.

You can speculate on falling prices

When you buy a share the old-fashioned way, you can only benefit from a rising price. By using certain derivatives you can go short. When you short sell you get a positive result if the price falls.

Hedging risks

Derivatives are known to be risky but useful for speculation. In practice, however, you can also use derivatives to hedge your risks. If you expect prices to fall, you can take a short position on, for example, the Dow Jones. When the prices does fall, the short position will prevent you from losing money on your position. You can use a derivate as an insurance policy on your portfolio.

Portfolio diversification

When you use diversification in a smart way, you can reduce the risks of your investments. By investing in derivatives as well, you spread your opportunities across multiple investment products thus reducing your risk further. This can improve the profitability of your investments.

Pin prices

Derivatives also have an important function in economic traffic. Companies can use derivatives to obtain certainty about the price of a raw material. This prevents a company from going bankrupt by no longer being able to cough up the high cost of a raw material.

What are the disadvantages of derivatives?

Investing in derivatives also brings with it the accompanying disadvantages. Below we discuss why you should be careful with trading derivatives.

Difficult to determine a value

With some derivatives, it’s pretty easy to determine the value. For example, a CFD is transparent and follows the price of a share one to one. With options, it is more difficult to determine a fair value.

Complex products

Derivatives are often complex products. It takes time to understand how all types of derivatives work. It’s never wise to invest in products that you don’t fully understand. When you invest in derivatives, it is therefore important to do sufficient research.

Sensitive to demand & supply

Supply and demand can greatly influence the price development of a derivative. In 2020 oil futures got a negative price because the demand for oil dried up. It is therefore important that you understand the risks of derivatives well before you invest in them.

Bankruptcy (default)

For some derivatives, there is a risk of the bankruptcy of the counterparty. This is the case when the derivative is sold outside the regular exchange. When you buy derivatives outside the exchange, it is important to research the party behind the derivative.

Derivatives in practice

Derivatives have been given a bad name. Nevertheless, derivatives also hold a useful function in our economy. For example, companies can use derivatives to hedge important risks. When there were no derivatives, it would have been a lot harder for many large companies to run their business. Especially with the internationalization of all business activities, it is important to cover the various risks.What many people don’t know is that you can also use derivatives to minimize your investment risk. Options can be used as insurance for falling stock prices. You can use derivatives in all kinds of strategic ways to reduce your investment risks. Remember, however, that every insurance costs money. So you only have to do this when you consider the likelihood of failure high.Do you want to try investing in derivatives for free with a demo? Use the button to open a risk-free demo account:

The derivative product

A derivative is a financial instrument whose value is derived from the trade of an actual product. For example, an apple farmer can sign a contract with a trader for his entire crop before there is a single blossom to be found in the trees. The agreed-upon price for the crop will be lower than when the farmer has a peak yield, but a lot higher than it would be with a failed crop. Derivatives prevent large financial setbacks.With financial derivatives, it’s usually all about the underlying value of stocks, commodities and currencies. With a derivative, you can trade in the value of one of those instruments.

What are the benefits of trading?

Trading is becoming a popular activity. A trader opens positions to sell them short term. A trader does this to try to make a profit by speculating on the market. The time in which he holds a position can vary from a few seconds to a day or longer. A trader can open up multiple positions in stock, trackers, bonds and other financial products.

Creating an income by trading

Traders speculate on the small price changes on a market to turn a profit. Unless they use leverage, traders only get a small return on their investment. By following this tactic frequently, the total return goes up. Many skilled traders are so good at trading that they’ve quit their day jobs and have become full-time traders.

You can trade all the time and from anywhere

advantages tradingA huge advantage of trading is that you can do it anywhere and all the time. Thanks to the internet, it’s possible to trade from all over the world. You don’t even need a computer because you can trade from your smartphone as well. And there is always an exchange open where you can open and sell a few positions. At night in Europe, the Asian exchanges are open and during the daytime in Europe one can trade on the European or American exchanges.

Advanced programs

To open and close several trades within a few seconds you need advanced programs. Brokers that are focussed on traders have equipped their programs with a lot of tools to help make trading easier. With these programs you can quickly run a full analysis to help you decide whether to trade a stock or not. An analytical mind is important for trading as you must constantly work with numbers. If numbers confuse you, trading is not for you.

Expand your knowledge through contact with other traders

Despite the competition between traders, there is a lot of communication and exchanging of information. By trading you learn new strategies and special constructions to increase your profits. An important part of trading is learning how to deal with stress. This will generally get easier as you become more experienced. In addition to making profit, you also develop all kinds of other skills through trading that can be useful in daily life.

Not just benefits

Trading also has a few downsides. An important downside is the solitary nature of the work. While you’re trading you’re mostly isolated, which means there is minimal social contact. Trading also involves risks.Trading can go wrong and profit is not guaranteed. It takes hard work and sacrifice to become a good trader.  However, as soon as you are successful, the downsides will never outweigh the benefits.Do you want to start trading? Open a free account with a broker and start learning how to trade by practicing today!

What are investment funds?

Investment funds are very popular at the moment. This is not surprising as it is a lot easier to invest in an investment fund instead of investing in shares. But what is an investment fund? And what should you look out for when you select an investment fund? In this article you can read everything you need to know about investment funds.

What is an investment fund?

An investment fund is a fund that invests in the name of a big group of clients. Many funds invest in a mix of shares or bonds. There are also funds that focus on other investment products like derivatives. When you deposit some money within an investment fund, you will receive participation. If everything goes well with the investments of the fund, you will achieve a positive return.

How can I invest in an investment fund?

You can invest on your own in an investment fund, but it has to be done at a broker. A broker is a party that can help with the realization of buying and selling investment products. You can choose to actively trade the values of investment funds, or you can decide to buy a long-term participation.

Speculate on the price of an investment fund.

You can choose to speculate on the price of the investment fund. This way, you’re participating in short-term trading. It is also possible to speculate on a decrease of the market (besides buying). A good firm to actively trade in the prices of investment funds is Plus500. You can try out the different opportunities for free with a demo:

Buying participation in an investment fund

Most people choose to invest long-term in an investment fund. When you deposit money within an investment fund you receive a participation. When you participate in a fund, you will be able to claim a partial revenue of the fund. Would you like to know where you can buy the cheapest participation in an investment fund? Click the following button to compare the best brokers for buying participation in investment funds:

The different types of investment funds

Investment funds come in all shapes and sizes. Most funds have a specific point of focus. A fund can focus on a specific sector or region for example. Another type of fund, are the funds that focus on a specific investment product. Below, we discuss the different types of investment funds:
  • Share funds: these funds invest in a bunch of shares.
  • Bond funds: these funds invest in bonds or loans.
  • Mix funds: these funds diversify their investments in shares & bonds.
  • Hedge funds: these funds speculate on the market with derivatives.

How does an investment fund work?

The principle of an investment fund is simple. An investment fund tries to collect as many funds as possible from potential investors. As an investor, you have to pay certain costs to be able to invest in a fund.

The fund managers subsequently decides where the funds will be invested in. In most countries, investment funds needs to make the essential investment information available for everyone. The investment policy can be found in these documents. In these documents, an overview of all risks and costs is included. It is recommended to read this information carefully before you deposit your money in a fund.what is an investment fund

What do I need to look out for when selecting a fund?

Before you start your quest for an investment fund, it is important to determine what your focus points are. What is your investment plan? How long would you like to invest? What risks are you willing to take? If you have determined the aforementioned, you can research and compare some funds.

It is important to research the different funds to determine in what investment products they invest. Does the firm invest in shares or bonds for example? Examine what the division of these products within the fund is. When a fund invests a lot of their capital in one specific share, the spread of the risks is very limited.It is also important to examine the costs of the investment fund you are considering. You need to pay managing costs to every fund and in some cases you’ll need to pay extra costs if the fund achieves good results. Costs can reduce the potential investment results greatly. It is therefore recommended investing in a fund that charges low costs.

What is the difference between open-end and closed-end funds?

Most investment funds are open-end. With these funds, it is possible to join in on the fund whenever you’d like. New deposits will be distributed over the current investments of the fund. This ensures that the results of the existing participants will not be influenced when someone new wants to join. Most open-end investment funds can be freely traded on the exchange.

Some investment funds are closed-end. The number of participations is restricted with these funds. When the fund opens, investors may enrol. The value of a closed-end fund is more comparable with the value of a share. The value in this specific fund is determined by supply and demand on the exchange and not by the actual value of the fund. A closed-end fund can be traded with a premium.

How much does investing in a fund cost?

When you’re investing in a fund, you will always need to pay managing costs. The cheapest funds charge a cost percentage of approximately 0.5%, while other funds may charge 2%. Be aware of funds that charge high percentages. It is very hard to beat the market as an investment fund and high transaction costs may take away a big piece of your yield.

Besides the managing costs, you will also need to pay transaction costs when buying participation at your broker. That’s why it is essential to find out how much you will have to pay to buy investment fund participations at your broker.

What are the pros of investing in an investment fund?

Investing in an investment fund has its pros. We will discuss the most important advantages of investing in funds.

Diversify investments

You can diversify small investments by using an investment fund. When you would invest $100 monthly, it would be costly to diversify your investment.  Every time you have to pay the same transaction costs, over and over.By using an investment fund you can decide to invest in a basket of stocks or bonds with a small amount. This can significantly reduce your risk!

Knowledge

When you invest in an investment fund, you can benefit from the knowledge of the fund manager. The average investor has a lack of time and limited knowledge of shares. The average fund has employed a team that analyses everything all day long. Chances are that team will find the exact thing you would have missed.

Access to exotic markets

Some markets or sectors are rather hard to approach as a private investor. It can be very hard to invest extensively in real estate for example. Likewise, it can be very hard to invest in upcoming markets like Brazil and India. Using a fund to invest can save you a lot of money, while still profiting of the currency movements of these markets.

Lower costs

If you choose a fund with low transaction costs, you will save a lot on your investments. If you bought each share yourself, it would cost you a lot of money. These lower costs give you the opportunity to reach a higher yield!

What are the cons of investing in an investment fund?

Investing in an investment fund doesn’t only have pros unfortunately. We will discuss the most important cons of a fund in this section.

Less flexible

When you use a fund to invest, you fully outsource the management of your investments. You won’t have a say in what investments the fund will carry out. Would you like to invest in specific shares? In that case, you might want to buy the shares yourself at a broker.

The price of a fund lags behind

The price of an investment fund is not updated very frequently. Most funds only update the value of their fund once a day. Some funds even update their results only once a week, once a month or even less frequently. With most funds, it is therefore only possible to join the fund on set, daily moments.

Negative yield

Even with investment funds, you can stumble upon a negative yield. During tough economic times, it is normal that funds will perform poorly. Even funds that claim that they can beat the market, will perform worse than normal.

What are the risks of an investment fund?

With every type of investment it is possible that you will lose money. You will risk a fall in value of the money you invest. It may be wise to invest with a periodic amount. By doing so, you will avoid investing in a fund when the market has just reached a new top.

What is the difference between an active and a passive investment fund?

An active investment fund tries to beat the market. They try to do this by buying and selling their shares actively. Because of the high amount of transactions and analyses that need to be carried out, the managing costs of an active investment fund will be significantly higher. In reality, most active funds won’t be able to beat the market.A passive investment fund (also known as an index fund) doesn’t trade actively. They try to track a specific index or market as carefully as possible. A perfect example of this is an investment fund that tries to stimulate the Dow Jones.

How should I invest in a fund?

If you want to build up a large capital, it is highly recommended looking for a fund that spreads the risks over a large number of regions and investment products. Next, you can deposit a certain amount periodically into the fund. This way, you’ll avoid the risk of joining a fund at the wrong moment.This way of investing can get you a high yield in the long term. This is due to the force of compound interest or interest on interest. If you reinvested the profits you achieve with the fund, it will be possible to achieve a return of more than $1.000.000 over an extended period.

What is an ETF or Exchange-Traded Fund?

An ETF is an investment fund that is traded like a share on the stock market. You can buy or sell the ETF with your broker. The value of an ETF fluctuates due to the price changes of the underlying securities.

What is a hedge fund?

A hedge funds is a special type of investment fund and is characterized by higher risk. A hedge fund can trade in all sorts of derivatives. Besides that, a hedge fund can take short positions. By taking these short positions, the fund can speculate on a fall of prices. Some hedge funds use leverage. By applying leverage the fund can invest partially with borrowed money.

A hedge fund can potentially achieve high yields. However, the risk of investing in a hedge fund is a lot higher as well.

What you need to know before you start trading

In this article we look at what you need to know before you start trading. Do you know how you can benefit from trading? Trading is no longer only for the rich!

What you need to know about trading:

  • Trading is not only for the rich; you can start with just 100 pounds.
  • Even in a downward market you can profit by shorting.
  • Trading doesn’t take up a lot of time.
  • You don’t pay any commission fees if you pick the right broker.
  • You can try-out trading for free through a demo.

Get started with a demo?

It’s recommended that you start out with a demo. A lot of people know a little bit about trading, but not a lot of people actually try it out and dare to discover how good they can be at trading. The beauty of trading with a demo is that it is free and, when you are ready, you can start out with a small amount of money.Want to try out trading with a free demo? Click here to compare accounts >>

Trading isn’t just for the rich

The first thing you need to know is that trading is no longer exclusively something for rich people. There are many online brokers with low fees that private investors can also use to trade and make money on the exchange. An interesting extra feature is the presence of leverage. With leverage you can profit a lot with just a little stake of your own.Leverage makes it possible to invest up to 2000 pounds with just 100 pounds of your own. You can decide to buy 2000 stocks worth 1 pound each with an amount of 100 pounds. And if the price of the stocks goes up by just one cent, you profit 20 pounds! The great thing about leverage is that you can accelerate your results.

Market prices falling? Not a problem!

It is also important to know that a market that is going down can be your best friend. It used to be only possible to make money when the market was in an upward trend. Thanks to the introduction of shorting, that is no longer the case. When you short on a stock, you make money when the price goes down!A huge advantage of this feature is the fact that you can profit from negative news. Rumours can collapse the price of a stock. For example, if the price goes down by ten percent, you can profit greatly! This is especially true if you combine the short with the earlier-mentioned leverage.

Trading isn’t extremely hard…

You don’t have to be highly intelligent to be a successful trader. Think to yourself; are your smart friends really rich? The answer is probably no. History has shown that anyone can be successful at trading. It is all about the mindset.With trading there are two important skills that you need to learn: managing the risks and dealing with losing. Once you have mastered these skills, you can become very successful regardless of your age, background or education.Basically, there is only one thing that you really need to know about trading: Trading is profitable and anyone can get started for free.

What is slippage?

Slippage happens when the price falls below your limit or stop order. For example, if you have set a position to automatically close when the AEX closes at 330 points, but the trade closes at 331. You have a higher loss than expected with the stop loss that you had in place.

How does slippage happen?

slippageThere is a difference between the expected price of a trade and the price that it has been executed. Slippage usually happens during times of extreme volatility, when orders are being used and when large orders are expected. Slippage can’t be avoided at times, but how do you deal with slippage?

Guaranteed stop loss

With most brokers, it’s possible to set a guaranteed stop loss. In case slippage occurs, the broker will pay the extra cost. This guarantee does cost you some extra money. You pay a higher spread, which causes the cost of a trade to go up. It’s recommended that you use a guaranteed stop loss when you expect a high level of volatility.
Tip: Use a guaranteed stop before the weekend and when important news is expected.

What is short selling and how does it work?

Going short or short selling makes it possible to speculate on a falling stock price. But what is short selling? And how does short selling work? In this article we explain shorting a stock in simple terms.

What is short selling?

When you short sell a stock, you earn money when the price decreases. On the other hand, you lose money when the price of the stock increases.

You can go short on almost anything. It is possible to short sell shares, commodities, currencies and even cryptocurrencies. Especially in economically bad times short selling can be very profitable.

How can you short a stock?

Do you want to speculate on a declining stock price? By shorting a stock you can benefit from downward movements. In this section you can discover how you can short sell a stock yourself.

Method 1: CFD’s or contract for difference

The first way you can go short is by using a CFD or contract for difference. With CFD’s you can speculate on a fall in the price of a stock. You never become the owner of the product in which you invest. With CFD’s, you only trade in price differences of the underlying effect. The result is then credited to your account. Do you want to know more about CFD’s? Click here to read more about CFD’s.There are several online brokers that offer the option to short sell using CFD’s. A good party that offers short selling is eToro. With this broker you can trade all popular CFD shares. A big advantage of eToro is the fact that you can try the possibilities with a free, unlimited demo. This makes it possible to discover how shorting a stock works without any risk. Click the button below to create a free (demo) account:

Method 2: short selling with a put option

You can short a stock by using options. A put option allows you to sell a stock at the current price. When the price falls, you can buy the stock for a lower price. This makes it possible to make a profit on a decreasing stock price.A put option is always valid for a limited time. You pay a so-called premium to buy a put option. When the price goes up, your loss never exceeds the premium. This makes options an attractive method to short a stock. Do you want to learn how options work? Click here for more information!DEGIRO is a good party for buying and selling options. You can create an account with this party for free, by using the button below:

What are the biggest benefits of short selling?

Short selling can be very beneficial. Below we discuss the biggest advantages of short selling.

More flexibility

Having the option to short stocks increases your flexibility. When you buy shares, you can only achieve a positive result in an increasing market. When you also have the possibility to short sell, you can also benefit in decreasing markets.

Lowering risks by hedging

You can also hedge by shorting stocks. By hedging you can cover certain risks. Do you believe that stock prices will go down? Then it can be pricey to sell all your shares and buy them again later. You can cover your risks by taking on a short position on an ETF that tracks an entire market.

Higher return

When investors panic, stock prices can drop rapidly. By short selling you can achieve a substantial return in a short time. Below, for example, you can see Shell’s price movements during the corona crisis in 2020:shell shorting stock

What are the disadvantages of short selling?

There are also some disadvantages to short selling. Below we discuss the possible risks of short selling.

Unlimited loss

When you buy a share, you cannot lose more money than the value of the share. When a share costs $10, you cannot lose more than $10. With a short position, every increase costs you money. The value of the share could theoretically increase to $100 or maybe even $1000. Your potential loss is therefore unlimited.

Pay dividends

When you short sell a stock, you have to pay the dividends. Fortunately, this is not a big problem: the price of a share drops as much as the value of the dividend that needs to be paid.  On balance, therefore, nothing changes.

Short squeeze

A big risk of short selling is a short squeeze. A short squeeze is a situation in which the price of a share increases considerably because there are many open short orders. When the price increases, the stop losses of many of those short positions will be hit. The holders of those short positions are then obliged to buy the shares, which further increases the price.

Against the trend

In the long run stock markets increase in value. When you place a short order, you place an order against the general trend. It is therefore important to time your short position well.

Financing costs

With many financial products you pay financing costs for your short position. For example, with CFD’s you pay a daily premium. When you open a short position by using options, you do not pay any financing costs. However, with options you do run the risk that your option will become completely worthless at the moment of expiry.

How does short selling work?

Short selling literally means selling shares you don’t own. I totally understand that this sounds confusing. That is why we take a closer look at how short selling actually works. I’m just warning you: the underlying theory is not simple and quite abstract! If you have any questions, feel free to ask them at the bottom of the article.

A simple explanation of how going short works

You sell stocks you don’t actually have

When you short sell a stock, you are selling shares you don’t own. In order to be able to sell these stocks, you will have to borrow them. These stocks are usually borrowed from a party that owns many stocks for the longer term. You can think of a bank, insurance company or a pension fund.The investor is then obliged to cover the underlying value of the stocks. That way, the stocks can be bought back at any time. The lending party wants the guarantee that the investor can pay for the borrowed stocks when necessary. You should therefore always have enough money in your investment account. If you do not have enough money on your account, you can face a margin call. With a margin call, you can lose the entire balance on your trading account.Short selling stocks

How do you make a profit on a short position?

When the price subsequently falls, the investor can buy the stocks at the lower price and return them to the party who lent the stocks. This makes it possible to earn a profit with a falling stock price. The difference between the current price and the moment when the stocks are bought back determines the result.

The lending party receives a percentage of the value of the share. We also call this percentage the financing costs. You still have to deduct the financing costs from your profit. The amount differs per stock.Fortunately, the bank or broker takes care of this complicated process. For us, as individuals, short selling is often a matter of pressing a button. The results are then automatically updated on your account!

A more extensive explanation of how short selling works

How does short selling work in practice?

Short selling a stock can be done using user-friendly software. Most online brokers allow you to go short at the touch of a button. The software neatly keeps track of whether you make a profit or loss on your position. A good broker to short sell CFD stocks is eToro. With the user-friendly software you can choose within seconds whether you want to buy or short a security.

When you buy a security you speculate on a price rise and when you short a security you speculate on a price decrease. The biggest advantage of short selling is that you can always respond effectively to the market situation. Do you also want to take a short position? Use the button below to open a free demo account:

How do you benefit from short selling?

Short selling stocks can be very profitable. Stock market declines are often more extreme than rises, allowing you to make more money on a decline than on a rise. In addition, falls are often easy to predict: in the event of negative news, the prices often drop massively for a whole day, and you can take advantage of this!You can achieve positive results within the eToro software by short selling. For example, it is possible to short sell all popular CFD shares within the eToro software. Negative news will drop the price, while positive news will push the price up. The great thing about eToro’s software is that you can try trading for free by using a demo account. Let’s take a look at how short selling works in practice.

Short selling stocks

You can choose to go short on a stock. This can be attractive in bearish markets. For example, the corona crisis resulted in significant falls on the stock market. The tens of percentages in loss can result in tens of percentages in profit for the short seller.

Short selling bitcoins

If you are the person who doesn’t get scared of a little tension, then it might be interesting for you to short sell the bitcoin. The volatile currency has collapsed several times. Negative news can cause the price of a bitcoin to collapse thousands of dollars. You can take advantage of this by placing short orders.Shorting Bitcoin

Going short on Bitcoin can turn out very well

Three strategies for successful short selling

There are three strategies investors use with short selling.

Speculate on the price

Day traders constantly try to take advantage of small price movements up and down. By short selling you can also achieve a positive result when the price drops.

Covering risks

Do you think that the prices of your stocks will drop significantly? Then you can cover this risk by going short by using a put option. You pay a small premium for this. Are the prices falling? Then you won’t lose any money. Are the rates rising? Then you will only lose your premium.

Arbitration

Some shares are traded on different exchanges. For example, Unilever shares are listed on the Dutch and English stock exchanges. Sometimes there is a tiny difference in the price of a stock between both exchanges. A positive result can be achieved if you go short on the share with the price that is too high. As a private investor, this way of investing is not possible, because you need fast computers to do this.

How much does shorting cost?

You pay transaction costs over your short position. The amount of the transaction costs depends on the broker. Most brokers calculate a spread. This is the difference between the buy and sell price.You also pay financing costs over your short position. This is a daily fee over the total amount of your investment.

What are good times to place a short order?

 Timing is important when investing. But when is the best time to apply a short selling strategy? We discuss three moments when going short can be an attractive option.

Short selling during an economic crisis

Placing a short order can turn out well during an economic crisis. When traders panic, stock prices often drop sharply. By taking a short position, you are one of the few investors to take advantage of the situation.

Shorting after the release of bad business results

The publication of bad business figures can also be a good time to place a short order. Investors expect a certain profit. When the company achieved significantly worse results, the stock price can drop sharply. This might be a good moment to open a short position on the stock.

Go short on bad news

Bad news is also a good reason to go short. For example, the emission scandals caused the stock prices of various car manufacturers to fall sharply. As a smart investor you can profit from this!Volkswagen buying share

The emissions’ scandal caused the price of Volkswagen to fall sharply between 2015 and 2016

What are the risks of short selling?

It is important to be careful when short selling. The loss in a normal investment is limited to the value of the share. When a share costs $100 at the time of purchase, you can never lose more than $100. However, the potential loss on a short position is unlimited. The price of a share can theoretically continue to rise indefinitely.

Negative balance in short selling

Fortunately, most online brokers offer negative balance protection. This is the case with both Plus500 and eToro. This means that you can’t lose more than your investment. Still, you have to be careful with a short position. If you make the wrong decision, you can lose all the money on your investment account in one go.

What is a short squeeze?

When a stock rises sharply, a short squeeze can take place. The parties that went short suddenly have to deliver their shares. As a result, even more shares are bought, which further increases the price of the stock. Short positions can therefore contribute to an increasing stock price.

Do parties always lend shares?

As a shorter, you are dependent on the willingness of other parties to lend shares. When large parties all decide to stop stock lending, it becomes impossible to go short. Fortunately, as a private investor, you usually don’t suffer from this. When this happens, the burden is often carried by the online broker.

Example of short selling

With a simple example we will show how short selling takes place in practice. Imagine that a share is available for $100. You decide to take a short position on this stock with a CFD. After you open the position the price of the stock decreases with $10. You decide to close the position. You then make a profit of $10 per share.By applying leverage, you can increase your result with a smaller amount. If you applied a leverage of one to ten in the above example, you would make a profit of $100 with the same investment. Do you want to know more about applying leverage to your investment? In this article you learn how leverage works!

What is naked short-selling?

Naked short-selling is entering into a short position without being able to deliver the underlying shares. This is not possible with most brokers. In any case, you will have to cover part of the position with money.

Ethics and short selling

Short selling is considered a bad thing by some authorities. Companies that are already under pressure because of disappointing results can get into further trouble because of people who decide to short their stocks. For example, a massive number of customers of a bank can withdraw their balances from their bank accounts when they see that the stock price continues to fall further. As a result, the bank may eventually go bankrupt.However, the possibility to short sell a stock is usually not the primary reason for a decreasing stock price. Short selling is strictly controlled by most governments. When the stock markets crash, it is often temporarily prohibited to place new short orders.In the Netherlands, for example, the option to go short in SNS, AEGON and BinckBank was temporarily prohibited to give the stock exchange time to recover. In addition, the ability to short sell stocks can contributes to price formation of securities and can promote liquidity in the market.Shorting can also keep companies straight. When something is not right, companies are severely punished for this. For example, the Luckin Coffee stock fell sharply after it was leaked that the company had committed fraud with its accounts. A company that shorted their stocks discovered the fraud.

What is scalping?

Scalping is another way to trade. With scalping you keep your positions open for a maximum of two minutes. You open a position on a stock – Shell, for example – to almost instantly sell it for a small profit.

How does scalping work?

scalpenWith scalping you try to take small profits from the tiniest fluctuations on the market. You do this using leverage. The price of a stock normally fluctuates slightly during those two minutes. Scalpers try to profit from these tiny price movements.When the price of a stock is set to $5, and you want to make a tiny profit as a scalper, you can open your position and close it at 5.01 pounds. Scalpers are often focussed on these tiny price changes and don’t keep positions open for a long time.

Is scalping allowed?

Scalping is completely legal in some countries and fully illegal in others. Brokers could also decide to forbid scalping. With the broker Plus500 scalping isn’t allowed. When you do want to scalp, it’s best to try broker Markets.com. This broker isn’t against scalping.

Why scalping is difficult

Scalping is very difficult. Since you only make a tiny profit for each trade, you need to trade a lot to make a decent amount of money. And for every position you pay a transaction fee. These fees put a dent in your already modest profits.Professional scalpers are so good at opening and closing positions that they can do ten to twenty trades every hour. By opening and closing positions really fast based on technical analysis, for example, it’s possible to make even more money than trading the traditional way.

What is going long?

Going long is a trading term that is used a lot. It’s recommended that you know what a long position is and the implications of going long before you start trading.

What does ‘going long’ mean?

Going long is a trading term for buying a stock, commodity, index fund or currency pair. You go long when you expect the price to go up and you make money when it actually does go up. The opposite is also possible; when the price goes down you lose money.

When do you go long?

If the price is in an upward trend, it’s recommended that you go long. Thus, when the price is mainly going up, you should buy. Timing is everything here. In our technical analysis course, we go deeper into the different indicators that you can use to time your positions.

What is fundamental analysis?

A fundamental analysis is an analytical method which focuses on the intrinsic or real value of a share. According to the fundamental analysis theory a stock price will in the long term always move towards this value. A fundamental analysis considers revenues, earnings, profit margins and other factual data to predict the price course of your shares. How can you use a fundamental analysis to achieve better investment results?

What is fundamental analysis?

Fundamental analysis is a technique which you can use to determine whether you should buy a certain share. The objective of fundamental analysis is to determine whether a stock is undervalued or overvalued. The stock’s intrinsic or real market fair value is determined by looking at the prospects of the company. In contrast, technical analysis ignores the financial statements but is based on the current share price movements.

How can you apply fundamental analysis?

A fundamental analysis can be performed on various levels. Before buying a share, it is recommended to take a look at the different levels.The broadest level to focus on is the economy as a whole. When you apply this level of analysis, you look at the economy of an entire country. The economic situation of a country has a major influence on the price fluctuation of a share. When the economy of a country does well, the demand for different products and services will increase. Businesses will subsequently be able to increase their profitability which will cause stock prices to rise.Another focus level is the specific sector or niche. At this level you focus on the sector in which the company is active. Some sectors have better prospects and are more profitable than other sectors. Retail shops for example are continuously losing customers to online shops. These types of developments can have a positive or negative effect on the share prices of the companies which are active within this sector.When you apply fundamental analysis, you will focus your efforts on an individual share most of the time. In the rest of the article we will explain how you can determine whether a company is doing well from a fundamental point of view.

Tip: A fundamental analysis is mainly used for shares. A fundamental analysis can nevertheless also be used for other securities like bonds and derivatives.

The basis: does a company have a competitive advantage?

The basis of fundamental analysis is to determine whether a company has a competitive advantage. Is a company performing better than its competitor? To determine whether this is the case, you will have to analyse the activities of the company and compare their results with those of companies that are active in the same sector.Research whether the company has a unique advantage compared to other companies. If the company has a strong competitive advantage, there is a high probability for a positive development of the share price in the future.

Qualitative vs quantitative analysis

A fundamental analysis can be divided into a qualitative and a quantitative analysis. A quantitative analysis purely focuses on the numbers. When you apply this type of analyses you can for example research the profit and turnover numbers.A qualitative analysis researches focuses at less tangible things. Think about the quality of the management or the future plans of the company.

Examine the opinions of all stakeholders

When you perform a fundamental analysis, it is also wise to investigate the expectations of other parties. You can for example focus on the company’s expectations for future growth. Companies regularly publish their profits and their profit expectations.

Other professional investors

You can also consult the analyses of professional investors. Especially when this professional investor has a large group of loyal followers, their opinion can cause shares to move in a certain direction. Moreover, professional investors often have in-depth knowledge of certain stocks. There is always a chance they might have seen or discovered something you have overlooked during your analysis. Two pairs of eyes are better than one. Use their analyses to fine-tune your predictions. Watch out though… even the best make mistakes!fundamental analysis opinions

Experts are regularly publishing their reviews and opinions about shares. Source: stockchase.com

General sentiment

Finally, it might help to get an understanding of the general sentiment. To get an idea of the general sentiment, you can browse through news websites and forums. The general sentiment has a strong impact on the share price fluctuations. Panic among investors can cause a dramatic share price crash. When a share price crash occurs, it is important to determine whether it is because of the company performing poorly. When a company is still doing well and has good prospects, times of panic may be the ideal moment to buy new shares.Various small news updates might cause fierce reactions in the world of stock trading. When the CEO of a company is for example out for a week due to illness, this might have a negative effect on the price of that share. It frequently occurs that a rumour (which appears to be fake news later on) has a strong impact on share prices. An example of a rumour that can strongly influence the price of a share is a rumour about a potential take-over.

Which reports are published by a company?

Companies which are publicly listed need to periodically share their financial data. Based on this financial data you can determine the health and stability of a company. You can use the balance sheetthe profit and loss statement and the cashflow statement.

The balance sheet

The balance sheet is a statement which reports the company’s assets and debts at a certain moment. On the left side you can consult the assets, the cash and the inventory of the company.On the right side of the balance sheet you can find the liabilities and shareholders’ equity. The shareholders’ equity shows the amount of money which has been invested by the shareholders. You can also determine the size of the debts the company holds, and you can discover whether the company has put parts of the profit aside.The balance sheet can provide you with interesting insights about the financial health of a company. You can for example determine whether the company has many debts. The balance sheet, however, does not show you the current profitability of the company.balance sheet

Example of a balance sheet

The profit and loss statement

The profit and loss statement is a financial statement which shows you the longer-term financials of the company. The financial figures are usually quarterly or yearly figures. This statement usually reports the following data:
  • Net-turnover: all the revenues of the company over this time period.
  • Gross profit:the revenues minus the costs which are causally related to the turnover.
  • Operational result:the profit minus the general operating costs.
  • Result of normal operations before interest payment: the amount which remains after deducting extraordinary income and expenses.
  • Result of normal operations before tax payment: the profit of a company before taxes are paid.
  • Result upon tax payment: the profit which remains after paying taxes.
profit and loss statement

Example of a profit and loss statement

Cash flow statement

The cash flow statement indicates the liquidity of a company. Sometimes a company can be profitable but still have a lack of money. This mainly happens when the company has so-called paper profits which show in the financial records but which have not yet been received by the company. It is of crucial importance to investigate whether a company still has sufficient money to meet its obligations. A distinction is made between 3 sources of money:
  • Money for investments (CFI): money which is used for investments.
  • Money for financing (CFF): money which has been used or received after lending or borrowing money.
  • Operational cash flow (OCF): money that stems directly from the company’s daily operational activities.
Many investors place great value on the cash flow statement of a company. Smart accountants can for example manipulate the profitability of a company by playing with the depreciation expenses. Manipulating the incoming cash flow is a lot trickier:cash flow statement

Example of a cash flow statement

What are important fundamental indicators?

The annual report plays an important role in fundamental analysis. Before you buy a share, it is therefore recommended consulting a company’s annual report. Based on the annual reported data, you can easily determine whether a company is financially healthy or not.By examining the financial health of a company you can determine whether it is wise to buy the share right now. This part of the article will discuss the important fundamental indicators which can be used to take investment decisions.

Earnings per share

Calculating the earnings per share is child’s play. To determine the earnings per share, we divide the net profit by the number of outstanding shares. You can use the earnings per share to determine whether there has been a positive trend. When the earnings per share have gradually increases over the past years this is a positive sign.

The price-earnings ratio

Another important indicator is the price-earnings ratio. This ratio indicates how many years are needed to earn back the current stock price. To calculate this ratio, you divide the profit per share by the number of outstanding shares. Low ratio numbers can be an indication that the share is undervalued. This could therefore be an interesting moment to buy your shares.On the other hand, when the ratio result is on the high side, this could be a reason not to buy the share. These kinds of shares are often very speculative. Shares with a very high ratio between price and earnings are often start-ups.In general, share portfolios with a low price-earnings ratio are performing better than portfolios with higher price-earnings ratios. An advantage of this indicator is that you can quickly determine whether a share is overvalued or undervalued. It is nevertheless important to also take other factors and indicators into account.

Dividend per share

Some companies distribute part of their profit by paying out a dividend. More details can be found in our article what is a dividend. The dividend per share indicates how much dividend you will receive for your share. This can easily be calculated by dividing the total dividend by the number of outstanding shares. An increasing dividend per share can make it more attractive to invest in that stock.The dividend per share is also known as the dividend yield or the dividend-price ratio. This is the percentage of the stock’s value which is paid through a dividend. When you use the dividend yield to calculate your dividend, it is easier to compare the result with other shares.

Book Value of Equity Per Share

A company’s equity consists of the value of the shares and the outstanding reserves. If you divide this value by the total number of shares, you will get the equity per share or equity per stock. It is also referred to as the intrinsic value of a share. When the share price is lower that the equity per share, it might be interesting to buy the share.

More advanced fundamental indicators

When you perform a fundamental analysis, you can use various fundamental indicators. When you want to make a complete analysis you can also use these advanced fundamental indicators.

RORC or return on research capital

This is an interesting number when you are looking to trade in companies for which research is of paramount importance. To calculate this number, you need to divide the current gross turnover by the Research & Development expenses. The result will allow you to determine whether the invested money has resulted in additional turnover.Do take into account that there is not always a strong relationship between research and profits. The additional profits produced by research may only be achieved years after the completion of the research.

What is Yield on cost (YOC)?

The Yield on Cost is the dividend yield on the initial investment. The yield on cost is not very useful for making predictions regarding the share price. After all, depending on when you have made your investments, the share price is lower or higher. Share price fluctuations are not taken into account within this indicator. Therefore, the YOC mainly proves to be useful for calculating your return on investment.

Volatility

When considering investments, you can also look at the volatility of a stock. When a share price is very volatile, it is often a bad omen… a proof of uncertainty. Your analysis should research the origin of this uncertainty. When you are looking for stable investments, volatile shares can better be ignored. Volatile shares nevertheless do offer opportunities. When you buy a volatile stock at the right moment, you can achieve a huge return on investment.

Using the order book

Brokers often offer you the possibility to use the order book. The order book tells you how many investors are planning to buy or sell a certain stock. These numbers are interesting in the short term: the orders help you to predict whether a share price will rise or fall in the near future. The order book can also be used as part of your long-term strategy because you can use it to find an attractive moment to start your investment in the share. There are nevertheless better ways and methods to make proper long-term predictions than to use the order book.

Investments by the management

Another good approach is to keep a close eye on the management of a company. When the management is buying additional shares, this can often be a positive sign. After all, the management of a company are the first ones to know whether their business is doing well or not. They have the first hand inside information and their behaviour often reflects the health of the company.Do some research though because investments of the management do not always automatically reflect the well-being of a company. Maybe one of the directors sold some shares because he would like to buy a new house and not because he is losing confidence in the company. Therefore, always take your decisions based on multiple fundamental analysis data.

Fundamental analysis applied to Forex

When talking about Forex trading the macro-economic numbers play an important role. Because this is such a huge market, one little party can barely influence the currency price. When you focus on Forex trading it is therefore important to keep an eye on the economic and political situation of the country or region where the currency is used. The following indicators can help you to make the right analysis:
  • The current interest rate
  • The Gross National Product
  • The consumer price index (CPI), the inflation and other expense indicators
  • The unemployment rates within the region
  • The consumer confidence
  • The trade balance of the country
  • The governmental fiscal and monetary policy

What is the intrinsic value?

Fundamental analysis is used to determine the intrinsic value of a share. The interplay between supply and demand determines the price of a share. The price of a share is not always a perfect reflection and representation of the true performance and health of the company behind the share. Even when a company does not have a proper plan or interesting prospects, hypes can still result in huge stock price increases. Similarly, some tend to sell their stocks en masse during a crisis, while the company is still performing well.You can use fundamental analysis to determine the real value of a company. True believers of fundamental analysis believe the stock price will gradually move towards this real value in the long term.Fundamental analysis, nevertheless, is not an exact science. Experts often disagree and there is not one true method to evaluate the intrinsic value of a share. Two investors can have two entirely different opinions whereby one investor concludes to sell his shares while another one plans to buy even more shares. It is therefore important to remember that fundamental analysis is only a method to approach the intrinsic value of a stock as closely as possible. The true value of a share will always remain fairly subjective.

What are the advantages of a fundamental analysis?

Fundamental analysis is particularly useful for discovering medium to long-term investment opportunities. By analysing the results, you can predict whether the prospects for your stock or currency are positive. With this information, you can decide whether it is wise to buy or sell the researched asset.By analysing the numbers behind a company, you make rational choices as an investor. People are feeling machines often led by emotions. A fundamental analysis can help you to avoid taking important investment based on your feelings.By applying your fundamental analysis in a proper and smart way, it is easier to determine when a share is traded too cheap or too expensive. This way, you know whether it is smart to invest when a market correction occurs.

What are the disadvantages of a fundamental analysis?

People also bump into various disadvantages when making their fundamental analysis. Making a proper and detailed fundamental analysis is a time-consuming task: you need to combine the information and data of various sources to achieve a clear and valuable overview. Therefore, creating a fundamental analysis can be a complex matter which is often not really suitable for traders who like to move fast.The results produced by a fundamental analysis are often long-term results. Therefore, fundamental analysis has little to no value for day traders. If you prefer trading in the short term, a technical analysis might be more valuable and useful.Making a fundamental analysis is often an uphill battle and hard work for investment newbies. It can be a struggle to properly compare the different sources. Most beginners therefore opt for technical analysis.Moreover, a fundamental analysis means taking into account unexpected situations. A company can for example be on the right track but still report bad results. This for example happened during the financial crisis in 2008 and during the corona crisis in 2020.Although a combination of both fundamental and technical analysis has proven to be the most successful, combining both in practice is a hell of a job which requires in-depth knowledge and expertise. Properly making both a fundamental and technical analysis is only possible when you are a full-time trader. Practice makes perfect and never fail to try… by doing so you will discover which method works best for you!

Criticism on fundamental analysis

Not everyone is a believer in the merit of fundamental analysis. Technical analysis advocates and aficionados believe all required knowledge is captured in the current share price. According to them, it is useless to try to determine the intrinsic value of a share. It is better to recognize patterns in the graph and to act upon these patterns.Efficient market hypothesis advocates believe it is impossible to beat the market in general. According to this theory, shares are always sold at the most efficient price. The market immediately takes advantage of opportunities causing them to disappear in the blink of an eye. In all honesty, I am not a believer in this vision. The average investor is not that rational and when you apply the right techniques, you can take advantage of the stock market and get good a good return on your investment.

What is a ponzi scheme?

When you start investing you sometimes come across terms of which you probably have no idea what they mean. The term ‘Ponzi scheme‘ is a similar term. In this article we will explain what is meant by a Ponzi fraud in the investment world.

What is a Ponzi Scheme?

A Ponzi scheme is a fraudulent scheme in the investment world, where old investors receive the money from new investors. Such a system has a chance of success as long as new investors enter it. Old investors are often promised extremely high returns to convince them to invest. Subsequently, everything is done to hide the origin of the return.

In the end, a Ponzi scheme can never last forever, and it collapses. In most cases, the Ponzi scheme is already stopped by the authorities, before it comes to a total collapse: there is then talk of Ponzi fraud.

How can you recognize Ponzi fraud?

The smart investor can easily recognize Ponzi fraud by paying attention to these characteristics. In fact, it is always important to stay sharp when investing over the internet.

High return at low risk

When you start investing, risk and return are always directly linked. When a fund offers you a high return at little or no risk, the alarm bells should ring. As an investor you are paid to take risks and the (potential) compensation increases when the risk increases.

There is no supervision

Reliable investments are actually always under the supervision of a regulatory party. In the UK, this is the FCA. If you have doubts about the legitimacy of an investment, you can always contact the regulator in your country.

Stable profit distribution

An investment almost never pays out a stable profit. Stock exchanges are unpredictable and volatile, so even in good economic times you will regularly lose money. When an investment product promises both a stable and high return, you have to be careful.

Ask to invest again

Ponzi schemes often ask investors to reinvest the amount they earn. This often happens at an even higher promised return. By asking investors to re-invest the money, the parties behind the Ponzi schemes prevent them from failing prematurely.

Complicated products

Investment products within a Ponzi scheme are often unnecessarily complicated. It is always important to only invest in products that you fully understand. This way you avoid losing a lot of money through investment fraud.

Professional appearance

Don’t let slick websites and beautiful photos fool you: modern crooks know exactly what to do to come across as reliable. Therefore, always investigate the party you want to do business with.

Active approach

When someone on the phone or on the street suddenly wants to sell you a great investment product, you have to be cautious. Professional institutions do not just sell their investment products over the phone.

Past results

Be sceptical about past performance: crooks can also easily falsify investment results. Therefore, ask enough critical questions to get the truth to the surface.

Who is Charles Ponzi?

ponzi piramideThe name Ponzi scheme, comes from the Italian Charles Ponzi. He used this technique in the 1920s in the United States. Yet, Ponzi was not the pioneer of this system, because a century earlier it was already described by Charles Dickens. Bernard Madoff was the one who set up the largest Ponzi scheme ever.Ponzi started his fraud from an arbitration on stamps, in connection with shipments abroad. He became so successful that he earned a lot of money. In four months’ time Ponzi managed to raise millions of dollars.

The mistake of Ponzi

The fault in Ponzi’s system lay in the fact that he did not invest money, as he told the people. The money that came in from new investors, was used to pay out the old investors and the customer acquirers. Ponzi was blinded by this easy method of earning money. However, his charm allowed him to continue undisturbed for a long time. In the end, it was Clarence Barron who proved that he was a fraud.

The Ponzi fraud

Often Ponzi frauds are arranged in advance, but it also happens that well-intentioned investment plans become Ponzi frauds. This often happens when investors cannot be paid due to a disappointing return. Out of panic, the organizer can then attract new investors and use the money of the new investors to pay the old investors. The originally legal investment plan has now changed into a Ponzi scheme.

Pyramid game

Ponzi fraud resembles a pyramid game in some aspects, but can last longer. This is because fewer new participants are needed. For example, Bernard Madoffs Ponzi fraud lasted for about thirty years because he offered a high, but not absurdly high return. In spite of this, Ponzi frauds are sometimes erroneously called pyramid games.In a pyramid game or pyramid fraud, the new participants must actively recruit new participants. They then share in the profits of the new participants. The problem, however, is that a sufficient number of new participants can never be found to provide income for the entire pyramid. The pyramid game also looks a bit like the corporate structure of MLM companies.

Example of Ponzi scheme

Let’s explain the working of Ponzi fraud using an example.In the first month, 10 investors all deposit $1000. The fraudster promises to pay them a return of 50%. In the first month, the investors receive an amount of $5000, after which the fraudster still owns $5000.In the second month, another 10 investors enter with $1000. The fraudster pays all 20 investors their return after which the fraudster still owns $5000.In the third month another 100 investors enter with $1000. The fraudster leaves and steals the $105,000. All investors then lose their money.

Who is Bernard Madoff?

Bernard Madoff

A page with explanation about ponzi fraud can’t do without a paragraph about Bernard Madoff. This shady gentleman led the company Bernard L. Madoff Investment Securities from the year 1960 onwards. He used the company to set up a pyramid-like structure where the returns of new investors were used to pay out those of existing investors. Trust is essential in a similar structure: if too many investors leave, the house of cards would collapse.

On paper, he carried out a split-strike strategy in which he issued call and put options on the 35 most traded index-related stock market funds. The return on this would be around 10% each year and almost never recorded a loss. He worked with intermediaries who sign up new clients in exchange for commissions.In 2008, he was arrested when it turned out that the whole concept was a big lie. Before he turned himself in, he paid out high bonuses to family, friends and employees.

Albanian Anarchy of 1997

In 1997, there were major riots in Albania. After the country separated from the communist system, a large network of Ponzi fraud arose. The government supported the schemes and more than two thirds of the country’s population invested in the schemes. In 1997, the system collapsed and half of the then domestic product went up in smoke. Many of the country’s residents lost their savings and large-scale violent riots ensued.

Contemporary Ponzi schemes

Even now there are many Ponzi schemes where people are seduced with unrealistically high returns. Don’t fall for it, chances are you’ll lose all your money!

What is an index fund?

Investing in an index fund is relatively straight-forward: you see that more and more people are investing in this investment product. But how can you actually invest in index funds? And what kind of indexes are there?

What is an index fund?

An index fund is an investment fund that strives to achieve the same return and risk as a certain stock market index. The fund does this by passively taking over the content of an index. Because the fund manager does not have to carry out any analyses himself, the transaction costs are usually lower than with a normal investment fund.

How can you invest in an index fund?

It is quite easy to invest in an index fund. You can choose to buy the index fund directly or to speculate on price differences with a derivative.

Participating in an index fund

The easiest way to participate in an index fund is to buy an ETF. An ETF is an exchange traded fund that you can buy and sell on the stock exchange just like a share. The price of an ETF then automatically moves with the price of the index.A major advantage of buying ETFs is that transaction costs are low. At DEGIRO, for example, you can invest in a large selection of index funds without incurring transaction costs. Would you like to try this out? Use the bottom button to open an account:

Speculating on exchange rate fluctuations

You can also choose to speculate on exchange rate fluctuations in the short term. This can be interesting when there is a lot of volatility and you expect strong market movements. You can then, for example, speculate on a price rise or fall in the AEX. If you want to speculate on fast price changes, it is best to use a derivative.A good party to trade CFDs in index funds is eToro. With eToro you can try out the possibilities completely free of charge with a demo. Use the button below to directly open an account with eToro:

What should you pay attention to when selecting an index fund?

There are hundreds of different index funds today. It is wise to compare the different options: in this way, you can determine which fund suits you best.

Types of investment products

Index funds can have all kinds of compositions. There are, of course, index funds that simply copy the composition of a stock market index. However, there are also more exotic funds that, for example, follow a composition of weed stocks or mirror the cryptocurrency market.When investing in an index fund, it is therefore also important to consider what kind of risks you want to run. Do you only want to invest in safe securities such as bonds, or do you prefer to take some risks? First consider your risk appetite and determine how much risk you want to run: based on this you can decide which index fund suits you best.

Region

Index funds can relate to different regions. Some indices contain shares of the whole world, while others only follow the price of specific countries. By investing in different regions, you can spread the investment risks as much as possible. It is often advisable to invest in several index funds: in this way you increase the chance of a positive return.

Investment policy

Not every fund has the same investment policy: some indices, for example, include dividends and others exclude dividends. When an index distributes a dividend, it can be reinvested or distributed. There is also a difference between fully replicated funds (where all shares in an index are tracked), partially replicated funds (where a selection is followed) and synthetic funds (where derivatives are used).

Costs

Index funds can also differ widely in terms of costs. Index funds are generally cheaper than traditional investment funds: this is because management costs are much lower. Nevertheless, it is important to stay sharp: some funds conceal all kinds of extra costs, and of course, you want to avoid that. That is why you should investigate carefully whether additional transaction costs are calculated and whether a surcharge is included in the price.

Dividend tax

Another problem of some funds is that dividend tax is leaking away. For the MSCI World Index, for example, you lose around 0.5% each year in tax payments. Not all funds can reclaim these amounts for you: so pay close attention when you want to invest in an index fund.

Lending shares

Some funds also lend out part of your shares to other parties. This can be advantageous, as it gives the fund an extra return. However, lending shares also involves risks: the other party may go bankrupt, for example. Therefore, carefully examine what percentage the fund lends to other parties and with whom the risks lie.index fund definition

What is an ETF?

An ETF is actually the same as an index fund with one clear difference: an ETF is tradable on the stock exchange just like shares are. This makes it easier to buy and sell participations, which is, of course, advantageous. An index fund is often only traded once a day, and you need to open a separate account with the provider to trade.

What is a tracker?

A tracker is actually a synonym for an ETF (and index fund). A tracker is an investment instrument that attempts to track the performance and risk of a stock market index.

What is an actively managed investment fund?

An actively managed investment fund is a fund that actively buys and sells shares on the basis of the latest market developments. A similar fund employs many analysts, all of whom have to be paid. As a result, the costs are higher than for an index fund: on average between one and two percent. To be attractive, the funds must therefore perform better than the market, which is often not the case. Therefore, be careful with investments in actively managed investment funds.

This is also reflected in how many of these funds operate. Many funds regularly change their name, which means that they remain positively known even when their performance is disappointing. It is also difficult to predict when the stock markets will perform well: in the period between 1996 and 2010, most of the profits were achieved on 10 specific days. If you did not own any shares during those days, your return would have been much lower.

What are good index funds?

When you invest in an index fund, you naturally want to achieve the best possible results. To achieve this, it is important that a fund has at least the following six characteristics. Does a fund not meet these requirements? Then it is better to search for another index fund.

Low costs

In any case, it is important to choose a low-cost fund: even a cost difference of 0.1% can make a huge difference. This is because when you invest, you also receive a return on your return. As a result, over a period of 30 years you can quickly lose 20% of your return just because of that small difference in costs. Therefore, it certainly pays to invest in index funds with a cheap broker.

Risk diversification

It is also smart to apply sufficient risk diversification. In this way you prevent your investments from performing badly because a certain sector or region is doing badly. By investing in a global fund, you benefit directly from developments in various regions. Of course, you can also choose to invest in funds from different countries.

Physical replication

It is also advisable to choose an index fund with a physical replication. This means that the fund actually buys the underlying shares and bonds. Imitations with derivatives, also known as synthetic replication, are often complex, and it is then difficult to identify the risks.

Minimal dividend leakage

A fund with minimal dividend leakage is also recommended. Many funds lose 0.1 to 0.2 percent in dividend because you cannot recover part of the taxes paid through your tax return. Investigate the amount of dividend leakage at the fund in question.

Large and efficient index fund

It is also advisable to invest in an index fund that is large enough: smaller funds often incur higher costs, which results in a loss of return. In addition, a large fund has a higher liquidity, as a result of which transaction spreads are lower. Therefore, look for ETF funds with an invested capital of one billion or more.

Accurate tracking

Finally, it is important that the index fund in which you invest closely tracks the index. Not all indexes are equally accurate: some funds have a so-called tracking error which may cause the results you achieve to differ from the results the index produces.index fund investment

Why is it smart to invest in an index fund?

With an index fund, you can build up a nice, stable return over a long period of time. The costs of an index fund are often low, and you need to spend little or no time building up assets. Moreover, with an index fund, you benefit from risk diversification, which means your risk is lower than if you were to buy shares yourself.

What are the disadvantages of index funds?

With an index fund, there is little flexibility; the manager does not respond to market developments. With an index fund, it is also not possible to achieve a large profit in a short amount of time: after all, an index is the average for a broader market. Because you have no influence over individual purchases, you cannot control the investment decisions made by the fund managers.

Criticism of index funds

Index funds are not entirely without criticism. When more and more people switch to index funds, people are increasingly investing blindly. As a result, abuses at a company are less noticeable and can continue for a longer period of time. The subsequent crash of the stock could also be much greater when the abuse does come outIndex funds can also lead to greater fluctuations in the stock market. When people buy shares and a company is not performing well, they only sell the shares of that company. However, when the market is in a dip and people are selling their fund holdings en masse, there is a risk that the market as a whole will suddenly fall sharply as a result.There is also a risk for index funds trading in illiquid stocks. When many people want to sell their holdings in the fund at the same time, it can be difficult to sell the underlying securities.Despite criticism, index funds are still regularly recommended for novice and inexperienced investors. Warren Buffett, for example, also indicated that it makes more sense for most investors to buy an ETF on the S&P500 instead of selecting and buying individual shares.

What is the return on index investments?

The average return on the best performing indices is around 8%. You then have to take into account any additional costs. The moment at which you join also matters: it is therefore important to buy shares in an index fund on a regular basis.

How to buy an ETF?

Buying an ETF on an index fund is straightforward with most brokers. Within the broker’s platform, you can easily use the search box to find the fund you want to invest in. Once you have found the fund, all you have to do is enter how many units you want to buy. For example, if one ETF has a price of $80 and you want to invest with $800, you can buy 8 units of the fund.You can also register with a company for an index fund. When you go for this option, you usually set up a fixed periodic deposit. This amount will then be automatically debited from your account on a monthly basis.

How does an index fund work?

An index fund mimics the actual index as much as possible. For example, the AEX is made up of an X amount of Unilever shares and an X amount of Shell shares. There are various techniques that funds use to simulate an index.

Many funds opt for complete imitation. In the case of full replication, each share in the index has the same weight in the index fund. In this way, the results of the index and the index fund are almost identical.Some funds opt for partial imitation. In the case of partial imitation, a representative selection is made of shares within the fund. The price of the index fund may then differ slightly from the index.Finally, there is sometimes an index fund that works through derivatives. In this case, the bank promises to pay out a certain return. However, this is more risky, as in the event of the bank’s bankruptcy, the investment becomes worthless.

Differences with an investment fund

  • An index fund follows the index, an investment fund does not.
  • The costs of an index fund are lower than those of an investment fund.
  • The policy of an index fund is passive while an investment fund is actively managed.

Why invest in index funds?

Index funds are an excellent way to invest in a balanced way in certain markets or geographical areas. With the AEX, for example, you can invest in 25 shares of the most well-known and influential companies in the Netherlands. In this way, you automatically spread your risk: if you buy just one specific stock, bad figures from the company in question will immediately depress your entire result.

Index funds are a relatively safe way of investing. When you put money in an investment fund or share, the chances of a lower or higher return are greater. The price moves less because it concerns an average of many stocks.

Selecting an index fund

There are many index funds and here, too, it is important to make the right choice. The costs are an important factor to take into account. Higher fees can significantly reduce returns. Large funds are often more efficient and can therefore offer their services more cheaply.Also check whether the fund tracks the index correctly. You can see whether the return of the index fund corresponds to the price development of the actual fund. Also check the location of the fund to research whether there is dividend leakage.If you really want to invest safely, you can choose to invest as globally as possible. Global funds follow all stock markets together, sometimes combined with bonds or even real estate. In this way, you generally stabilize your investment results.

What is the spread in trading?

When you trade, the spread is an important factor you need to account for. The spread forms the transaction fee of a trade and can be seen as the difference between the buy- and sell price. But what is the spread in trading?

What are the buy- and sell price?

spread tradingWhen investing, there is always a bid and an asking price. But what do these prices indicate?
  • The bid price is the price at which you can sell the share.
  • The asking price is the price at which you can buy the share

What is the bid price?

The buy or bid price is the price that the broker is willing to pay for the stock. The buy price or ‘bid’ is always lower than the sell price or ‘ask’. With some brokers you can place an order on a falling price as well. When you do this you achieve a positive result if the stock price decreases. Speculation on a falling stock price is called shorting.

What is the ask price?

The asking price indicates at what amount you can buy a share. When you buy a share you earn money when the price increases.

What is the spread?

The offer and asking price together constitute the quote. Within the quote there is always a difference between the offer and asking price. This difference represents the cost to you as an investor, and we call it the spread.By determining the difference between the bid and asking price you will find the spread or cost per unit. You can then multiply this amount by the number of shares to find out how much you pay in total.

Why should you consider the spread?

When you sometimes buy or sell a share, the spread is not very important. After all, you only pay the small amount once. However, the spread is important for the active day trader. As a trader, you perform multiple trades within a short time frame. On every transaction you will have to pay the spread.

It is therefore wise to take a good look at which broker you can trade with cost-effectively. We’ve researched the best brokers for cost-effective investing. Use the button below to compare them:

How is the spread calculated?

The spread is a result of supply and demand within the market. Buyers want to buy shares as cheaply as possible while sellers prefer to sell shares at the highest possible price. When the price of a share is at $10, the seller can choose to sell the share for $10.02. When you take the offer, you are paying 2 cents worth of spread.

Brokers increase the spread by charging transaction fees.

What affects the spread?

The size of the spread may vary. When the bid price and asking price are close together, there is a tight market. The buyers and sellers then agree on the price of a share. In a large market, the opposite is happening: buyers and sellers cannot agree on a price.

The following factors affect the size of the spread:
  • Liquidity: liquidity indicates how easy it is to buy or sell a share. When liquidity is high, the spread decreases.
  • Volume: when the volume is high, there is a lot of trading activity. When the volume of trading increases, the size of the spread usually decreases.
  • Volatility: volatility is a measure of risk in a given security or market index. With higher volatility, the spread usually increases.

What does spread look like?

You can see the spread by looking at the difference between the buy and the sale price. Below is an example of spread on a CFD at Plus500:

Spread trading online

What is the difference between a dynamic and a variable spread?

A dynamic or variable spread is a spread that can change sporadically. When you start investing in a security with a dynamic spread, it’s important to make sure that the spread hasn’t become too unpredictable.

A fixed spread doesn’t change. With some brokers, you will agree on a fixed spread on certain securities. Also, when investing, you sometimes have to pay a fixed commission on your investment.

When can the spread increase?

The spread can increase if a given share’s trading activity drops. Also, during strong market movements, you may have to pay a higher spread. When many people want to sell a share, the spread can increase considerably.

How is the spread calculated when trading Forex?

On the EUR/USD currency pair the spread is usually 0.0002 per unit or less. Currencies are traded in whole units (1 euro, 1 dollar, 1 Yen, etc.) and the costs are calculated by multiplying the amount of the currencies you trade by the spread.

When you open a position of $10,000, you pay 0.0002 (cost per unit) x 10,000 = $2 in fees.

The spread in pips

Most brokers display the spread in pips. One pip is the fourth decimal of a currency pair, or 0.0001. Only the Japanese Yen is the exception to this rule, there the pip is the second decimal, or 0.01. If, instead of Forex, you trade stocks, commodities or index funds, the transaction fees are mostly displayed as fixed fees.
Want to know more about pips? Read more about pips in ‘what are pips?’

Why is there a spread?

A spread arises through the interplay of supply and demand. The quote or price of a share is created by combining the different buy and sell orders of the parties involved. This creates a market. The broker often increases the price to make money from the executed trades. This increases the spread further.

The difference between a variable and fixed spread

With some brokers, you have a choice between variable and fixed spreads. But which is cheaper? In this article we review what spreads are and discuss the different features of variable and fixed spreads. This way you can make an informed decision.

What is the spread?

The spread is the difference between the buy and sell price of a stock at one specific moment. This difference is the commission the broker receives. For example, if you can buy currency pair EUR/USD for 1.2711 and sell it for 1.2709, the spread is 0.0002, which is also known as 2 pips.

The spread is relative, which means your transaction costs increase when you invest with a higher amount of money. Some brokers also charge fixed costs.

Variable and fixed spread

Forex spread variabel fixedA variable spread is a spread that is dependent on the market situation, which can fluctuate. Trade volume plays an important role. When there is extreme volatility, it’s hard to realize the offered price, which means the broker may have to increase its variable spread. The variable spread is offered is often cheaper than a fixed spread, since the uncertainty is higher.

A fixed spread is the spread that is pre-determined. Regardless of how good or bad the market conditions are, the costs to open a transaction are the same. A fixed spread offers more certainty, but you pay a lot more for this certainty.

Variable or fixed spread?

I always recommend the variable spread. The costs per trade are a lot lower that way, which means you can save on your fees. You always see the spread you would pay for a transaction because the buy and sell price are set. If the spread is too high, you can always decide not to open a trade.

Under normal market conditions, the variable spread is a lot lower than the fixed spread. You can save a lot of money on fees when you trade frequently.

What is technical analysis?

As an investor or trader you can use technical analysis  to predict price movements. Technical analysis is particularly useful for short-term investments. In this course you will learn everything you need to know to predict the share prices yourself by means of technical analysis.

What is technical analysis?

In technical analysis, you study graphs and try to recognize patterns in them. You use data from the past  and on that basis you try to make a prediction about the future. With technical indicators, you can find good moments to buy and sell your shares.

Technical analysis differs greatly from fundamental analysis. In fundamental analysis, you try to make a prediction about the future by using the current financial figures of the company. Fundamental analysis is more useful for long-term investments, while technical analysis can be used for short-term speculation. Here you can read more about fundamental analysis.

How does technical analysis work?

The first time people see technical indicators, they often believe technical analysis is some sort of math. Luckily, technical analysis is not that complicated. Technical analysis is by no means an exact science and can only be used for timing your trades. When you apply your analysis, you should always look for a certain combination of factors.

When multiple technical indicators come together the predictive power increases. If this is the case, it is more likely that the share price will move in the predicted direction. When you use technical analysis you try to determine the moment at which you have the best chance of making a successful investment or trade.

Technical analysis course

Do you want to learn how to apply technical analysis? In this short course you can learn how to apply the most important techniques yourself.

Recognizing a trend

When applying technical analysis, it is advisable to first investigate the current trend. There are three main trends you can recognize:Uptrend: the price mainly rises.uptrendDowntrend:  the price mainly decreases.downtrendConsolidation:  the price mainly moves sideways.consolidationWhen you start trading, it is best to trade in tune with the trend. Some people choose to trade against the trend. When you trade against the trend, timing is even more important.When you trade in tune with the trend, it is best to take a position when the price makes a small movement in the opposite direction. For example, with an uptrend, you often see that the price first rises (the impulse) to be followed by a decrease (the  retracement).impuls retracement forexDo you want to learn more about recognizing a trend? Our article on this topic explains how you can recognize a trend:

Recognizing horizontal levels

The second step in your analysis is to search for a strong horizontal level. Horizontal levels are price levels which the price would have difficulty surpassing. There are two types of levels:
  • Support level: a level which the price does not fall under (bottom).
  • Resistance level: a level which the price does not surpass (ceiling)
At these levels, it can often be interesting to open a trade. The probability of a movement in the opposite direction is greatest at a horizontal level. Do you want to learn more about horizontal levels? In our article on this topic you will learn all about the use of horizontal levels:horizontal levels technical analysis

Using candlesticks

When applying technical analysis, it is wise to use candlesticks. A regular line chart gives you little information about price trends within a certain period. With a candlestick, you can make better investment decisions.A candlestick always consists of a body and a stick. The stick indicates the price range within the day and the body indicates at what price the share opened and closed on that day. Candlesticks give away a lot of information and can help you make a trading decision. Do you want to learn more about candlesticks? Read our article about candlesticks:candlestick explanation

Moving averages

You can use technical indicators to decide whether it is wise to buy or sell a share. A moving average shows how the average price of a stock has developed over a certain period. It is advisable to use the 50 and the 200 moving average. You can use the moving averages to determine if it is wise to invest at that time.The moving average also provides a lot of information about the current trend. When the moving average has a sharp angle, the trend is getting stronger. When the distance between the two moving averages increases, this is also an indication that the trend is getting stronger. Do you want to know more about using the moving average? In this article you can read everything you need to know about moving averages:moving average

RSI or Relative Strength Index

The relative strength index is another useful technical indicator you can use when you start trading. With the RSI, you can determine if there is a good opportunity to enter the market. The indicator shows whether a share has been overbought or oversold during a certain period.In addition, you can use the RSI to determine if there is a good chance that the price will move even further in the same direction. If the RSI moves in the same direction as the share price, the trend will probably continue. However, if the RSI moves in the opposite direction, chances are that the trend will reverse. Do you want to know how you can use the RSI on your trading activities? In our tutorial about this subject you will learn everything you need to know about the RSI:RSI convergence

Fibonacci as indicator

The final technical indicator we will discuss in this article is the Fibonacci indicator. The Fibonacci sequence of numbers is an almost magical sequence that you will find anywhere in nature. Funny enough you can also find the same number sequences on the financial markets.The Fibonacci numbers can be used to predict when a share price will continue to rise or fall. Do you want to know how you can apply the Fibonacci numbers to your trading activities? In this article you can find all the information you need:Fibonacci extentsion

What is technical analysis based on?

In technical analysis, it is assumed that all publicly available information is already incorporated into the price. Therefore, the focus of this type of analysis is on the statistical analysis of price movements. According to Charles Dow, the founder of technical analysis, the market is moving according to predictable and identifiable patterns.Technical analysis is based on the belief that history repeats itself. This is frequently seen in practice: the price of share often moves within a fixed range. When the lowest or highest level is reached you see that the price often moves in the other direction. However, it is important to remember that technical analysis is not a holy grail: it remains a subjective prediction that does not always come true. Hence, it is important to apply technical analysis in the right way.

How can you best apply technical analysis?

When you want to trade successfully by using technical analysis, it is important to set up a good system. To set up a good system, you must first make the necessary decisions.

Which broker will you choose?

It is important to choose a broker that suits you. Not all brokers are equally suited to execute technical analysis. When you want to apply technical analysis, you need to choose a broker that allows you to use indicators on a graph. It is also important to choose a party with low transaction costs. By doing so, you get the highest return possible with your trading activities.Would you like to know at which brokers you can trade by using technical analysis? By pressing the button below you can directly see our overview of the best brokers to trade with:

What do you want to invest in?

Subsequently, it is important to determine what you want to invest in. Do not go wild by trading random stocks. At first, it is wise to limit yourself to a couple of stocks that you monitor closely.

Set your rules

It is important to set clear rules. Determine which technical indicators you will use to set your strategy. In any event, you should always consider at what price you want to open a trade. Besides this, it is also wise to determine the levels at which you will take your profit or loss.It is also important to determine how you will deal with your risks. Good trades ensure that the potential profit on an investment is always higher than the potential loss. In the article becoming a day trader you can read more about managing your risks.

Testing

Next, it is important to test your analysis as much as possible. You can do this by applying your strategy to old data. However, it is important to remember that past results do not guarantee positive results in the future.It is therefore advisable to try your strategy with a demo. By using a demo you can simulate the investment results based on real data. Do you want to know where you can open a free demo? By pressing the button below you can directly open a free demo account:

What are the limitations of technical analysis?

In practice, history does not always repeat itself. However, technical analysis is based on this is the principle. It is therefore advisable to use a stop loss.  With a stop loss, you avoid losing a large amount on your entire investment.

Technical analysis also often becomes a ‘self-fulfilling prophesy’. For example, many investors place a stop order below a strong horizontal level. When enough people do this it can actually affect the share price. After all, it is the game of supply and demand that determines the price of a share.

Combining analyses

Both technical and fundamental analysis have their limitations. Professional investors often choose to combine both techniques. By getting information from multiple sources, you often deliver the best trading results.

What is the best investing software?

In this article we look at the best software to start investing with. Nowadays, it is possible for anyone to invest via the internet using software. Thanks to the arrival of online brokers you can start trading within minutes. But how do you actually download the software for trading, and how does it work?

What are the best software packages to invest with?

There are various platforms on the internet with which you can invest online. Here we discuss the best online software packages that you can use to invest in, for example, stocks.

Investment software for buying stocks

Plus500’s investment software is not suitable for investing in shares over the long term: you can only trade in CFDs. If you want to buy shares in the long term, it is best to use eToro’s software. At eToro, you can buy and sell shares without commissions. In this way, you save a lot in terms of transaction costs, which is of course enormously advantageous.Would you like to try the possibilities of the eToro software? Then immediately use the button to open an account with eToro:

How does the eToro software work?

The eToro investment software is also very user-friendly. Within the software, you can buy one or more stocks after you have deposited money. Use the search field within the software to immediately find the share you want to invest in. Once you have found the share, press buy. Make sure that you do not set any leverage: by leaving the leverage empty you make sure that you actually buy the stock without using a derivative.

eToro investing software

Trading software for speculation

One of our favourite software programs for speculating on price changes is Plus500’s online trading platform. The advantage of Plus500’s trading software is that you can start with a simulation. Within the trading simulator you can trade stocks, commodities and currency pairs under real market conditions, learning what it’s like to trade professionally.Would you like to try this software program for free with an unlimited demo? Use the button below to open a free demo:

How does the Plus500 software work?

After you have created an account within the trading software, you can start immediately with a fictitious starting capital of $40.000. Within the software, the following components are important:

Within the software you will see a list of securities on the left. You can decide for yourself what you would like to trade in. Some people like to trade in CFD stocks while others prefer to trade in commodities or currency pairs. You can select a security by clicking on it within the software.Once you have selected a security to trade in, you can decide what to do with it. There are always two possibilities: you can buy or open a short position. With a short position you speculate on a decreasing stock price.Let us look at an example within the software. On the day of writing, there was a sharp increase in the share of Bed Bath & Beyond. You could have taken advantage of this by buying the CFD share that day. If you had opened a short position, you would have achieved a negative result with your investment.Would you like a more detailed explanation of Plus500’s trading software? Click here to visit the Plus500 manual directly.Plus500 investment software

Illustrative prices within Plus500’s trading software

Investment software for buying ETFs

ETFs or exchange-traded funds are of interest to investors who want to invest an amount of money on a regular basis without doing too much research. An ETF combines a collection of stocks in a single investment product: this allows you to diversify your investments with a small amount of money.A good software program for buying ETFs, is DEGIRO’s program. With DEGIRO’s programme you can buy and sell fund participations without transaction costs. First check whether the fund you want to invest in is part of the core selection. Only the funds from the core selection can be bought without transaction fees.Would you like to open an account with DEGIRO? Use the button below to open an account:DEGIRO investment software

Paid software packages for carrying out technical analysis

In this part of the article we look at various software packages that you can use to perform technical analyses.

What is technical analysis?

In technical analysis you, as a trader, use indicators to find good moments to buy or sell a share. There are dozens of technical indicators: you’ll have to practice well to find out which indicators you can use best.

Metastock

Metastock is a very well-known and popular stock package for the professional investor worldwide. You can use the software to recognize patterns on the stock market. You can also use the software to create your systems and find patterns within the price data. Unfortunately, the software is not cheap: you pay over $400 for a licence. Click here to visit the website.Metastock software

OmniTrader

OmniTrader is another example of a software package that can be used to analyse stock prices. Within the software package you can recognize patterns. You can also set alerts and perform simulations. This programme, too, is anything but cheap: the cheapest version costs approximately $270 and the real-time version costs $725. Click here to visit the website.Omnitrader software

TAI-PAN

The latest software package for technical analysis that we are dealing with is TAI-PAN. This package has been specially designed for traders who are intensively involved in the stock exchange and for whom speed is important. Since 1987 you can find all price data of more than 200,000 stocks. Click here to visit the website. For the use of TAI-PAN you pay a monthly fee of £49.TAI Pan software

Other online trading software to support your decision-making

There are also various online trading programmes that can help you to achieve better investment results. Below we discuss some interesting options.

Tradingview

Tradingview is a user-friendly, online platform that allows you to track the markets. Within the platform you can find a lot of information about the various technical indicators you can use. If you can program your indicators, you can also develop your indicators. Thanks to the free trial, you can try out the possibilities of this software package without any risk. Click here to read more about Tradingview.Tradingview software

Trade Ideas

In the world of investment, computers may be the future. The software of Trade Ideas responds to this conviction. The AI of the platform screens the markets on a daily basis and indicates whether a technique works or not. By means of alerts, you can immediately receive a message when an interesting opportunity arises. The software is anything but cheap: you pay more than $1000 on an annual basis. You can test the possibilities with a free trial, click here for more information.Trading ideas software

TrendSpider

TrendSpider is another interesting software platform with which you can find good opportunities with AI. The TrendSpider scans charts in search of interesting setups for a trading position. For example, you can quickly find head-shoulder patterns in a chart. The software is also good at drawing trend lines and Fibonacci levels. Click here for more information about TrendSpider.TrendSpider software

Advanced investment software

If you are more advanced in investing, you can also use the advanced software. With MetaTrader, you can perform complex analyses on the price, allowing you to predict the next price movement. You can only use MetaTrader with brokers for professionals.MetaTrader software

Investment software – what is the best software?

How do you know that the investment software you use is the best? When you try software to invest you should at least pay attention to the following aspects:

  • Costs: is it cheap to invest within the software?
  • Options: can you invest in all known stocks at the broker?
  • Ease of use: can you easily find your way within the program?
  • Analyses: can you perform analyses within the software?
  • Speed: are your orders executed quickly and professionally?

What are the risks of leveraged investing?

Of course, leveraged investing involves more risk than traditional investing where you actually buy a share. Leverage allows you to make a large investment with a relatively small amount of money. The consequence of this, however, is that every change in price has a stronger impact on the balance. If you do not yet know exactly how the leverage effect works, you can first read our informative article on the leverage effect.

Understanding leverage risks

When you invest with leverage, you do not buy the security, so you can lose your entire position if the available capital is insufficient. With a leverage of 1:20, you only need five percent of the value of the security. However, this also means that an increase or decrease in the price of $1 will be multiplied by twenty.Before you start using leverage, it is essential to know and understand the risks. Leverage is a very useful tool and when used properly, it can result in high profits. Leverage has a two-way effect: it can help you, but it can also lead you to the abyss.

Risk of strong price movements

Leveraged products can make a volatile investment product even more volatile. Volatility indicates the movement of a share. When a share is very volatile, its price can sometimes rise or fall by several percent within a month.If you own stocks yourself, this does not need to be a problem. If your shares fall by 10%, you can hold on to them for a long time and still make a profit at a later date.However, when you are trading with leveraged products, a 10% drop can hit you hard. For example, if you invest with a leverage of 1:5, you immediately lose 50%. Therefore, do not invest in leveraged products without sufficient knowledge and ask yourself if you are prepared to take such risks.

Stop-loss or no stop-loss

Because of these strong possibilities to lose money, investors usually use a stop loss. With a stop loss, you can limit the loss on your investment position. However, you will lose your entire position and, as with a normal share trade, you cannot hold on to your position in the hope of making a profit at a later date.When you trade without a stop loss, you still run the risk of losing the money in your account. This is because when the balance on your investment account is no longer sufficient, your position is automatically closed.

Risk of high costs

Investigate carefully what costs you pay as a derivatives’ trader. When you use leverage, you also pay the spread over the larger amount. For example, if your transaction costs are 0.2%, with leverage of 1:5 they can rise to 1%.On CFDs, you also pay a financing fee, as the broker lends you the money for the investment. This means that leveraged products are really only suitable for short-term speculation.

Debtor risk

Also, always check carefully which party is issuing the leveraged product. After all, you are not the owner of a share. If the underlying party were to collapse, you could lose a considerable amount of money. Therefore, always investigate whether the broker with whom you trade in leveraged products is reliable.

Avoiding leveraged products?

So, as an investor, should you avoid leveraged products altogether? That depends on your approach. If you like to speculate on the stock market you can use leverage on a small scale. However, it is advisable to combine this with other investment products, and you should never speculate with money you cannot afford to lose.

A different view on leverage risk

You can also look at the risk of leverage in another way. For example, if you were already planning to speculate on a stock with $5000 and to close the position at a loss of $1000, you could achieve the same effect with an investment of $1000 and a leverage of 1:5.Applying leverage to your investments is therefore not necessarily a bad thing, as long as you think about it carefully. By applying it in the right way, you can make your investment strategy more efficient.

Maintaining margin

At some brokers it is possible to use ridiculously high levers of up to 400:1. However, this is ridiculous and your position will close quickly due to a margin call. Therefore, you should always maintain a certain margin, so the position can move. When the margin needed is for example $800, this means that the position will automatically close because of a margin call when the available capital on your trading account drops below $800.If you want to invest responsibly in CFDs, it is highly recommended having at least 2.5 times the margin requirement available on the account. This way you avoid a margin call and the position can remain open according to your strategy. If you want to trade completely safely, it is sensible to increase this ratio even more. In this way you manage the risk of leverage.Finally, it is important to the financing costs into account. When you invest with a leverage, you borrow money from the broker. You can read more about this in the article about the costs of investing in CFDs.

Trade risk-free with a small amount

In this article we look at how you can trade risk-free with a small amount.

Risk-free trading

Want to trade completely risk-free? You can! Nowadays, several brokers offer you a way to try-out trading completely risk-free using a demo account. Opening an account with a broker usually only takes a few minutes, and you can get started soon after. You can receive a registration bonus for your real money account:

  • eToro: trading CFDs, free demo of 100,000 dollars. Sign-up now >>
  • Markets.com: trade in Forex, free bonus of 50 pounds (T&C apply). Sign-up now >>

How do you start

After you’ve opened the account, it can be tricky to know where to start. With a free bonus, you can at least try a broker. However, the most fun is, of course, making money right away. To get good results trading, you must develop your own trading system or strategy. In this article I will talk about how I trade using an example.

Keep in mind that this article suits my trading system. At the end of the day, everyone has his or her own trading style, and it is important to experiment so you discover what trading style fits you best. You can experiment with a small amount of money.

Search for important levels

With my own trades I use a lot of technical indicators. Before you jump into complicated indicators like moving averages and Fibonacci levels, you should start with the most important levels. Important levels are those that the price can’t seem to break through.

Discovering these levels won’t make it possible to completely trade risk-free, but it increases your chances of success greatly. To discover an important level, you must zoom out. Doing so gives you a better look at the situation on the market and you can discover these levels.

Example: trading AUD/USD

The price of the Australian dollar has reached an ultimate low against the American dollar and it hasn’t moved away from this low level for a few years (11th of June 2013).

AUD USD weekly1

When the level was tested again after a while, the price went up and I took a buy position on AUD/USD. Thus I would make money if the price went up. The last time the price went up a lot and by placing my stop loss just below the crucial level and by placing my take profit a lot higher, I would either make a lot or lose just a little.

AUD USD max loss

By using a similar strategy, you can also make money trading when the price goes up! Risk-free trading is impossible, but by starting out with a small amount you can discover how to trade in a way that is 100% profitable.

How can you get rich investing in stocks?

Did you know that the rich did not become rich by working hard? No, the rich have become rich by managing their money smartly! The expression work smart, not hard is therefore certainly applicable! But how can you become rich by investing in shares? We will discuss the different ways and see how realistic it is.

Can you get rich investing in stocks?

It is certainly possible to become rich with shares. Well-known investors such as Warren Buffett and Benjamin Graham have made their fortunes with it. The good news is that you can become rich even with a small amount of money.

However, this is completely theoretical and certainly not easy. You need to invest a lot of time as well as money if you want to achieve good results in the short term. Alternatively, you can choose the slow method, but then you need a lot of patience. We will discuss the different methods in this article.Before you read on, it is important to remember this: YES you can become rich with investing and NO there are no guarantees. You can also lose a lot of money with investing, especially if you have no idea what you are doing and jump in at the deep end without practising.

How can you get rich with active stock trading?

The first way in which you can invest in shares is by day trading. Day trading is the very active trading of shares. You can use technical levels and the latest news to quickly buy and sell shares. The aim of active trading is to achieve a high return in the short term.

This way of trading takes a lot of time: if you apply the principles well, in theory you can make a lot of money with this way of trading. However, only a fraction of investors succeed in making money in the long term by actively speculating on share prices.Do you think you can become rich by actively trading shares on the stock exchange? Try day trading with a demo first, without any risk. That way you can find out if this way of trading suits you. Use the button below to open a demo account immediately:

Getting rich by buying shares

A strategy that works better for most people is to buy shares and hold them for a longer period. If you select stocks wisely, you can certainly become rich with them.For example, if you had invested $1,000 in Apple in 2000, it would have grown to $160,000 in 20 years! More recently, you could have invested $1000 in Tesla. If you had done this in 2010, your assets would now be worth $231,270! As you can see, you can certainly become rich by buying shares: it is important, however, to select the right shares.If you choose the wrong stock, you could easily lose your entire investment. Therefore, spend enough time researching the company you are considering investing in. Does the company have a good vision of the future? In that case, it can certainly be interesting to add the shares to your portfolio.Especially when you invest smaller amounts, it is advisable to do this at a broker where you do not pay fixed commissions. Are you curious about the best brokers you can invest with against low fees? Then take a look at our comparison of brokers:

The lazy way to get rich with shares

Don’t feel like keeping an active eye on the stock markets? Well, I have good news for you! If you start early enough, you can also become rich with equity investments without having to spend much time on them yourself. You can do this by investing in an index fund or ETF.An index fund or ETF follows a basket of shares and does not try to beat the market. When you reinvest the return you make over and over again, you will receive a positive return on that as well. The average return on shares is between 6 and 8 percent on an annual basis, which can be quite significant.If you invest $1000 per month of your salary at an average return of 8%, it will take you a little less than 27 years to become a millionaire. If the market is a bit of a breeze, then investing in shares is a great way to become rich. If you invest just $200, it will take you 46 years. As long as you have enough patience and discipline, you can certainly become rich with investing in shares.The trick is to deposit a fixed amount every month. In this way, you take the average return with you and are not faced with any nasty surprises. Remember that past results are no guarantee for the future.At DEGIRO you can buy ETFs in the core section without any buying and selling costs. By paying attention to your transaction costs, you will reach your goal to become rich with investing faster. Use the button below to open an account at DEGIRO:

Are there any guarantees?

Absolutely not! Investing is about taking risks and seizing opportunities. You can lose (part of) your initial investment. Are you afraid and can’t bear the thought of losing money? Then forget the dream of becoming rich and choose a “safe job” and a savings account.

Are you willing to take the risk with the dream of becoming rich one day? Then invest with money you can absolutely afford to lose and get going. People who take action get further in life than those who do nothing.

get rich investing

Why shares?

Research always shows that shares are the easiest way to become rich. Elon Musk and Jeff Bezos did not become rich through their salaries as CEOs, no, they became rich through owning many shares in companies that became increasingly valuable.

No one has ever become rich by selling their time. Time is a limited resource, and you cannot scale your income. Even if your skills are of unknown value, there is a limit to your income. This limit (theoretically) does not exist on equity investments. That is why I invest a large part of my income every month in shares.

Make a good plan

If you want to become rich with stock investments, it is important to draw up a good plan. First, carefully examine how much money is coming in each month: you need sufficient cash flow to be able to invest each month. Is there nothing left over on the bottom line? Then there is no point in starting to invest. It is then important to first reduce your expenses or increase your income.If there is money left over, then you can decide what amount you can and want to invest comfortably each month. Research what investment products exist and write a clear plan. When will you buy what for which amount? By making these kinds of decisions at a calm moment, you avoid making emotional decisions that reduce your return when the stock market is not doing so well.

getting rich shares

Is 100, 200, 500 or 1,000 a month enough to become rich?

Are you wondering if you can become a millionaire with a certain amount of money by investing in stocks? We’ll be happy to help you on your way! With our tool, you can immediately calculate how long it will take to become rich with your stock investments:
10

The investment will be worth!

Growth of the investment over time:

Investing balance in year

If you would start one year later with investing you would have less than if you would start today.

Everyone has a different definition of rich, of course. Consider how much is enough for you and see how much you can set aside. That way, you can determine whether your goals are realistic. A tip of the hat: if you have to achieve a 20% return every year to reach your goal, it’s not going to work.

Avoid these mistakes if you want to get rich with shares

It is important to avoid hypes as much as possible. Sure, you can get lucky by buying a stock at the right time. But you can also be wrong and lose a large part of your investment. You can do what you feel like, but if you want to increase your chances of becoming rich, it is wise to focus on more stable investments.It is therefore important to ignore the advice of others as much as possible. Your postman, mother or distant second cousin are not the best people to ask for advice. Investigate whether the person giving you “advice” has become rich through investing. If not, you have no good reason to listen to them.In addition, never start investing before you have sufficient knowledge. Only invest in investment products that you understand sufficiently and first practise how everything works. You don’t jump into a swimming pool if you can’t swim, unless you really want to drown.Try to keep your emotions out of it as much as possible: emotions are often a bad advisor. Emotions tell you to sell your shares when the stock market crashes, while that can be a good moment to buy more.Finally, do not put too much emphasis on getting rich quick with shares. It is better to increase your chances of becoming rich than to hope for a miracle. That is why we go to church on Sunday.

get rich investing 2

Forget these myths about getting rich with investing

  • I cannot invest: You may not be able to invest now, but investing is a skill that you can learn (perhaps with a lot of effort). Do you want to make an effort to become rich or do you prefer to stay poor all your life?
  • You do it better yourself: are you a brilliant investor? Then this may certainly be true. For 90% or more of all people, it might be better to call in a professional.
  • The rich are lucky: this may be true for that one lottery winner. You don’t get rich overnight; it takes a lot of perseverance.
  • You have to time the market: with the principle of compound interest, you do not have to time the market; simply invest a fixed amount every month.
  • I am too stupid: many famous and rich entrepreneurs never finished university. Putting money into an index fund every month is no more difficult than shopping.
  • It is too uncertain: the only thing that is certain is that if you do not invest, you will never get rich with a job.

Is working for a boss smart?

Many people have been brought up with the idea that getting a degree followed by a job is the way to a rich and happy life, but is it really? Who enjoys going to work on a Monday? Is it really fun to do exactly what the boss wants you to do? Is it fun to be able to go on holiday only when the boss gives you permission?

I don’t know what your answers to these questions are, but mine are certain! However, many people cling to their permanent jobs because they say they have security. But how much security do you really have? How long would you survive without your job? Because make no mistake, as an employee, you are replaceable and in these economically turbulent times the chance of dismissal is certainly present.

Especially due to uncertainty

Ultimately, you can find more security in what we call uncertainty. Without taking risks, you achieve nothing in life. It is the people who are afraid to take risks who end up being hit hardest. The only way to potential wealth is by taking risks. You will fall, but the person who gets back up most often survives.

Losing as a skill

If you want to become rich without effort, you will have to learn to lose. The way successful people deal with loss is very different from the way poor people deal with loss. Many people fail at stock trading because they keep losing positions open (I’m afraid to lose, maybe the price will rise), and close profitable positions too quickly (imagine losing my profit).To become successful, you have to do exactly the opposite. You cut off losing positions and keep profitable positions open until the direction has clearly changed. By applying this strategy effectively, you will increase your chances of success in stock trading.

How can you invest periodically without investing time?

Do you periodically have a certain amount of money left over that you don’t actually spend? Then it is wise to invest this money! When you have little time, it can be difficult to do this actively: fortunately, there are plenty of opportunities for successful periodical investing without a large investment of your time. In this article, we will discuss the best ways to make periodic investments.

What is the best way to invest periodically?

You can decide whether you want to make active or passive periodic investments. Let us briefly explain both options.

Active periodic trading

You can also choose to invest a little more actively on a regular basis. You can set aside part of your money each month and use it to buy shares. That way, you have more control over where your money ends up. For example, you could decide to invest your money only in sustainable initiatives.Especially when you invest smaller amounts, it is advisable to do this at a broker where you pay no commissions. If you make many transactions and pay for them each time, your return can quickly fall. At eToro, you can buy all well-known stocks without paying commissions. Use the button below to open an account at eToro immediately:

Passive periodic investing

Passive investing has its advantages: by investing passively, you do not have to make the difficult investment decisions yourself, and you also save on transaction costs in many cases. You can invest periodically by depositing a fixed amount each month in a fund. Such a passive fund is also called an ETF and is freely tradable on the stock exchange.A good party where you can invest periodically in a fund is DEGIRO. At DEGIRO you pay no purchase or selling costs for the funds that are included in the core selection. Use the button to open an account at DEGIRO:

Why would you invest periodically?

Periodic investing has several advantages. In this part of the article, we discuss why periodic investing can be attractive.

Risk spreading

By investing periodically, you spread your risks. It is difficult to predict the future, and it would be unfortunate to invest all your money at the top of the market. By constantly putting in a fixed amount, you step in when the price is high and when it is low. This gives you a more stable return.

Steady growth

By investing periodically, you will slowly see your deposit and return grow. Moreover, due to the power of compound interest, the speed at which your return grows will increase.

Low costs

Another advantage of investing periodically is that you can do so at low costs. At DEGIRO, for example, you pay no purchase or selling costs when the funds are listed in the core selection. Lower costs can automatically lead to a higher return.

Flexible

Are you short of cash for a change? In that case, you can skip a month. With periodic investing, you are not tied to anything, so you can always pause your investments. It is a good idea to invest continuously, as this is the best way to spread the risk.

Rest

Periodic investing also provides a lot of peace of mind. When you periodically deposit a fixed amount, you do not have to think about a strategy. Even when things are not going as well, you can just sit back and relax: you will only buy your shares at a cheaper price.

Accessible

Since with periodic investing, you don’t have to make many decisions, this investment method is also suitable for beginners.

Periodic investing in the stock market makes sense!

Many people do not believe that it makes sense to periodically invest an amount of 100, 200 or 500. Nothing is less true. Sure, the average return of 6-8% on $100 doesn’t get you very excited. However, you forget something important when you assess your investments in this way.This is because you will also receive a return on your return the following year. This means that every year you receive a higher relative return in relation to your initial sum. If you are smart, you can become a millionaire with periodic investing, even with small deposits. Of course, the stock market climate has to be favourable.

periodic filling

Is periodic investing something for you?

Periodic investing is not suitable for you if you need your money anytime soon. Investing for the long term only works when you can miss the money for a longer period. Therefore, periodic investing is suitable for the patient investor who wants to build up a nice capital in the long run.

That periodic investing can work out beautifully can be seen when you run the numbers. In the book A Random Walk Down Wall Street by Burton G. Malkiel, for example, you can read how an investor invested his first 100 dollars in the Vanguard 500 Index Fund in 1978. He kept this until 2013, and with a deposit of $44,000 he achieved a total result of $480,000. This clearly demonstrates the power of periodic investing.

How can you invest passively?

Many people have the idea that investing is hard work: you constantly have to select the right stocks to optimize your returns. Funnily enough, in many cases passive investing can actually deliver the highest returns. You do not have to make investment decisions all the time. In this article, we discuss the best ways to invest passively.

What is passive investing?

There are tens of thousands of stocks to invest in around the world. For many people, it can be difficult to select the best shares. By investing passively, you do not have to make difficult decisions yourself. This is because with passive investing, you invest in a set of shares that are purchased by an investment fund. The aim of passive investing is not to beat the market but to follow the market. By investing passively, you also build up a good, average return.

How can you invest passively?

You can invest passively with a broker by buying an ETF there. An ETF is a freely tradable fund. There are many ETFs nowadays. ETFs usually follow a particular market, region or index. With an ETF, you can invest in the price of an index like the FTSE or S&P500.

A good broker for passive investing is DEGIRO. At DEGIRO, you pay no purchase or sales charges on the funds included in the core selection. This enables you to achieve a higher return with passive investing. Use the button below to open an account at DEGIRO:

What are the advantages of passive investing?

Passive investing has its advantages. One major advantage of passive investing is its relatively low costs. Because passive funds do not have to carry out complicated analyses, the management costs are often low. Moreover, the orders to buy and sell shares are merged, as a result of which you pay lower transaction costs.

Therefore, in most cases, the return is higher when you invest passively. This is because many investors are not experts in predicting the market. As a result, few investors actually manage to achieve a higher return. When you have little financial knowledge, passive investing usually provides the highest return.Another advantage of passive investing with a fund is that the strategy is often very transparent. You see immediately what the fund is investing in. Since the fund simply copies a certain market, you always know where you stand. Active investment funds can sometimes have not so clear rules for buying and selling shares.

What are the disadvantages of passive investing?

Even with passive investing, you can lose money. Share prices rise and fall and when things go wrong, your return can be disappointing. A passive fund can hardly compensate for bad times, as they do not actively trade. They will not suddenly come up with investments that do well during a bad economic situation. Therefore, the flexibility is limited when you do passive investing.

Another reason why people often dislike passive investing is that it can be dull. When you start investing yourself, it can be very exciting. Actively trying to beat the stock market and buying and selling shares is a fun activity for many people. If you don’t mind a lower return, then active investing can be more attractive.Another disadvantage is that you have no influence. When you buy shares, you can attend the shareholders’ meeting. This gives you a direct voice on the future policy of the company. When you buy units in passive funds, you do not have this luxury. Of course, you do have some influence over what you invest in by selecting funds: if sustainability is important to you, you can buy a passive sustainability fund, for example.passive investment

Things to think about

Before you start blindly investing passively, it is wise to ask yourself certain things. When you passively invest in an index, your risk diversification may still be disappointing. This is because many stock indices are dominated by a handful of companies. When these companies have already built up a strong position, there is not much room for further growth.When you choose passive investing, you choose a stable, but not particularly high return. If you want to achieve a higher return, you will have to take greater risks and look for trends.It is also more difficult to follow your conscience when you invest passively. A passive index fund follows all the shares in an index regardless of how they make money. This can include companies that commit fraud, pollute the environment or produce weapons. By investing passively and not doing any research into the companies you invest in, you are partly responsible for these things.Moreover, there are often unique opportunities in the market. You have to invest a lot of time to find them, but they are there. During the corona pandemic, for example, you could have bought shares in companies that produced mouth masks. When the economy is down, it can also be smart to invest in relatively safe havens like gold and silver.Would you rather try active trading yourself? Nowadays, this is possible with just a small amount of money! Use the button below and learn how to buy shares yourself:

Active or passive investing: which is better?

Of course, this depends entirely on what you yourself are willing and able to do. If you have little experience and do not feel like doing research, then passive investing is usually the best option. Due to the low transaction costs, passive investing is also suitable when you invest small amounts and the risks are also considerably lower.

Do you still want to look for those unique opportunities in the stock market? In that case, active investing can be more attractive. In this way, you retain full control over your portfolio and only invest in products that suit you.

The best strategy for passive investing

But what is the best strategy for passive investing? If you really want to limit the risks of your investments as much as possible, it is best to opt for dollar cost averaging. You then buy a fixed number of units each month within a passive fund. In this way, you buy at both the lows and the highs.I often buy just a bit more when the prices have fallen a bit more: that way I get a discount on the purchase price. I strongly believe that what goes up, must come down, but in return what goes down, must go up. In the long run, productivity grows and over the last 100 years, you can see that the economy has only grown.In the long run, by periodically investing a sum of money passively, you can build up a nice sum. Through the power of compounding, whereby you reinvest your return, your capital grows exponentially. When you start investing young, you have a greater chance of building up a large fortune.passive trading instruction

Beware of these common mistakes

Even though passive investing sounds simple, you can still go wrong. It is important not to act emotionally. For most people, it is smart to deposit money periodically and then not to look at it. When you do look at it, there is only the chance that you will sell your shares without a good reason. That way, you miss out on recovery and soon lose a lot more money on your investments.Another mistake is paying too high fees. Passive investing is supposed to be cheap: you don’t need analysts and, if you’re smart, you don’t have to pay transaction costs when buying a fund. Every pound you save in transaction costs helps you achieve a higher return.Another mistake is to start too late: the best time to start passive investing is actually today. After all, you need time for your capital to grow. By entering the fund periodically, you avoid entering at the wrong moment. Therefore, there is no good reason to wait with investing.Finally, make sure you have enough diversification: it is a common mistake to assume that by investing passively you automatically diversify your risks. By no means is every passively managed fund well-diversified. When you invest in a gaming ETF, for example, sometimes you only buy shares in a handful of companies which are also active in the same market. Therefore, always research what you are investing in by buying a passive fund.

The most passive way of active investment

Day trading is a lot more active than investing in a fund. By setting up a good system, however, you can ensure that active investing can be carried out as passively as possible. It is precisely investors who carry out a set of rules every day who often achieve the best results. In this way, you only need to be actively involved with the market to a limited extent.Here it is important to choose some securities that you are going to keep an eye on. This could for instance be some shares or currency pairs; in any case it is important to have this clear to yourself. Subsequently, you can watch every day if there is a certain pattern on which you can act; in this case there are actually three possible situations.trendSituation 1: trend, the price goes down or up. When the trend is down, you sell after the rise and when the trend is up, you buy after the fall.consolidationSituation 2: consolidation, the price moves mainly between two points. Sell the security at the highest point or buy the security at the lowest point.reversalSituation 3: trend reversal, is there a horizontal level which the price has not been able to break through for a long time? Then there is a big chance for a reversal of the price.By using orders, you can ensure that your investments are executed automatically. This way, you do not have to constantly monitor the market.Would you like to try this method of semi-active investing yourself? You can do this with an online broker! Use the button below to open a free demo with a broker:

Investing with an investment simulator

It is not wise to jump straight into the deep end as a novice investor: fortunately, nowadays it is possible to use an investment simulator to try out investing entirely without risk. In this article we look at how to use the investment simulator and how to make your first investment with it.

Use the free trading simulator

You need special software for trading in CFD shares and commodities. This software is often supplied by a broker. At the broker eToro you can easily train your investment skills by trading with a fictitious starting amount of $100.000.Before we explain how you can invest with this software, we will first look at where you can use it.

Getting started with the simulator

As soon as you have downloaded the software package and created your account, you can start trading immediately. It is important to know that everything you do in the simulator with demo money is risk-free: you can never lose real money if you haven’t deposited money yourself.On the left-hand side of the screen you will see an overview of the securities in which you can trade. You can choose between CFD stocks, Forex (currencies), commodities, index funds (FTSE, Dow Jones) and EFTs. For each security you see the buy and sell price, for which you can trade the security in question.The purchase price is the price for which you can buy the security. When you press buy, you speculate on a price increase. However, within the simulator you can also sell the security. When you press sell or short, you speculate on a price decrease.trading simulator

Illustrative prices

Make your first investment

To open your first trading position, all you have to do is press the buy or sell button. As soon as you have made a choice, you can choose an amount for which you want to take the position. In addition, it is wise to set a value at which you automatically take your loss.A major advantage of the trading software is the fact that it is also possible to place a so-called order. With an order, the position only opens once a certain price has been reached. When you see a pattern in the chart, you can profit by buying the CFD share at the lowest price or by selling the CFD share at the highest moment.Investment order simulator

Illustrative prices

What is an investment simulator?

Chances are that you have used a simulator before. An example of a popular simulator is Fifa. With Fifa, you simulate as if you were a football player and you can participate in the Premier League. Actually, an investment simulator can be compared to this. With an investing simulator, you can buy and sell shares with a fictitious amount of money.

A trading or investment simulator is very attractive. After all, with a simulator, you can try out the possibilities without any risk. This allows you to apply all kinds of different strategies and see what works and what does not. When you are sure that you can invest well, you can open an account with a real broker.

What makes a simulation good?

Not all simulations are equally good. There are various factors that determine whether a stock simulator is strong. When you are looking for a strong & reliable stock exchange simulator, you should make sure that:
  • Market conditions correspond to real conditions.
  • The range of securities on offer is extensive enough
  • Useful analysis options are available
  • The software is user-friendly
Not all simulations are therefore equally useful. It is therefore wise to first thoroughly investigate which simulation best suits your wishes.

What are good trading simulations?

Below we will discuss six strong trading simulations that try to replicate the stock trading one on one.

Plus500: for CFD trading

Plus500 is the perfect match for the active trader who wants to simulate trading in CFDs. Plus500 offers CFD trading on all major stocks, index funds and currencies. With CFDs, you can place orders on both rising and falling markets. This method of trading is ideal for anyone thinking about becoming a day trader.Plus500 is a broker itself. Are you satisfied with the results within this simulation? Then you can immediately deposit money and start trading. The results you achieve within the simulation are 100% equal to the results you would achieve in real life. This makes the simulation very useful. Use the button below to open a free demo at Plus500.

Wall Street Survivor: discover investing in a playful way

A drawback of the Plus500 simulator is that you have to figure it all out yourself. This is not the case with Wall Street Survivor. Wall Street Survivor is a free package where you can playfully discover how investing in stocks works.WallStreetSurvivor simulatorWithin the website you can follow the basic investment courses for free. You will also receive a virtual account with $100.000 and some videos to help you invest. The website also organizes competitions. When you achieve good results, you have a chance to win thousands of dollars. That way you can win a nice starting capital by practising.Within the website you can also take out a subscription. With the subscription, you get access to many extensive courses. This is ideal if you want to learn more about investing in shares. The emphasis at Wall Street survivor is more on building a portfolio and investing for the long term. All in all, Wall Street survivor is a fun simulation for any investor who wants to learn more:

eToro shares simulator

eToro, just like Plus500, is a party where you can trade with demo as well as real money. At eToro you can simulate investing in real shares. This gives you many extra opportunities to try out the investment simulation.eToro copytrader

At eToro you can easily track other investors

A handy extra functionality is the social platform. With the social platform, you can discuss specific shares with other investors. This way you can share your strategy or vision and see if other people can add something to it. At eToro, it is even possible to follow other investors. The investments they make are then automatically opened within your account.Are you satisfied with the results achieved within the simulation? Then you can choose to deposit real money at any time.

HowTheMarketWorks

Another powerful simulator is HowTheMarketWorks. On this website you get many possibilities… for no money at all! The website offers an abundance of useful tutorials and information that can help the novice investor get started. This makes the site also very suitable for teachers who want to introduce their students to the stock market.HowTheMarketWorks investment simulatorStill, it is a mistake to assume that HowTheMarketWorks is only suitable for the novice investor. You can also invest in all kinds of advanced securities. Think for example of options or futures on commodities. Especially fun is the fact that you can set up competitions with your group of friends.Would you like to learn more about stock trading and would you like to set up your competition? Then open a free account at HowTheMarketWorks:

Marketwatch

At Marketwatch you can build a portfolio. You select your shares and then you can see how your basket of shares is performing against the baskets of other players. At Marketwatch you can make use of advanced options. Think for example of a stop loss order with which you can limit your losses as much as possible.MarketWatch simulator gameThe social aspect of Marketswatch is noteworthy. You can communicate with other players so that you can learn one-on-one from the best investors. You also have the possibility to start matches and you can choose to start a watchlist. With a watchlist, you can keep track of alternative portfolios and use this information to improve your investments.

What should you pay attention to in an investment simulation?

Many investors take the results within an investment simulation or share simulation too literally. They assume that the strong results they achieve in the simulation will also happen in real life. In practice, this can be disappointing.

After all, trading with fake money is always more comfortable than investing with real money. People do strange things when they see their money slowly disappear. You need a lot of emotional stability and confidence for this.When things are going well within an investment simulator, it is important to remain calm. Do not start investing huge amounts of money right away and try investing with a small amount of money first. In this way you will automatically discover whether the real results match those within the simulator.

Starting for real?

As soon as you understand how the investment simulator works, you can start investing with real money. Many investors discover that investing with real money feels different. This is because emotions play a more important role than when you trade with fictitious money. You can read more about this in our article on the psychology of investing.

By practising with the free demo within the simulation you will learn how to handle money and how to make the best investments. Once you have mastered this, you can easily deposit real money and start trading! Click here to see where you can try investing with a free demo.

How can you successfully invest with 50 pounds?

Recently, we have received the question from many people whether it is possible to invest with 50 pounds. The answer is yes, this is certainly possible! By starting with a small amount of money you can try out the possibilities of investing without running a big risk.

Would you like to invest for free with a demo first?

Would you like to try out investing completely free of charge by means of an unlimited demo? Then it’s good to know that there are currently several brokers where you can use a considerable amount of money to invest, completely risk-free.

Use the button below to try out investing directly with a free demo:

Where can you buy shares with 50 pounds?

A good broker to buy shares is eToro. At eToro, you can buy shares with small sums of money. A big advantage is that at eToro you don’t pay any commissions: this allows you to achieve a positive return even with a smaller amount. By using the button, you can try the possibilities for free with an unlimited demo:50 invest

Investing in a fund

You can also choose to invest 50 pounds a month in a fund. This way, you slowly build up a nice capital. It is advisable to hold on to the funds for a longer period. Especially with a small amount like 50 pounds, the transaction costs can quickly mount up. At DEGIRO you can, when you save enough money, buy funds from the core selection for free. Use the button below to open an account at DEGIRO:

Investing your change

If you want to invest a small amount of 50 pounds, you can also choose to invest your change. You can do this with the Peaks application: the amounts you spend are rounded up and you invest this amount in a fund. In this way, you could build up a small fortune without even realizing it. Use the button below to try Peaks for free:

Peaks invest 50 pounds

Investing in Crypto’s

If you want to take a bit more risk with your investment of 50 pounds, you can decide to buy cryptos with it. At Bitvavo, you never pay more than 0.25% in transaction fees, so you can buy altcoins even with a small amount. The returns on cryptocurrencies can sometimes be tens of percents in one day, but you can also easily lose a similar amount. Use the button below to open an account with Bitvavo immediately:

Is it possible to invest with 50 pounds?

10 years ago, it was unthinkable that you could invest in shares with 50 pounds. It is therefore impressive that it is now possible to invest with 50 pounds. However, it is important to pay extra attention to the transaction costs when you invest with 50 pounds: especially with the more expensive parties, the costs are too high for you to make a good return with 50 pounds.

It is therefore important to select a broker where you do not pay fixed commissions. Whether it is smart to invest with 50 pounds? That is doubtful. When you invest with 50 pounds, you can only spread your risks to a limited extent. Moreover, it is difficult to achieve a high return with an amount of 50 pounds.Investing with 50 pounds is therefore particularly interesting for investors who like to try out the stock market: to get a taste of it, so to speak. When you are ready, you can then invest a larger amount in the future.

Smart to start early

By the way, it is certainly advisable to start investing early, even with small amounts. For example, you can put 10, 50 or 100 pounds a month in an index fund at a young age. Time is your best friend: over a period of decades, you can build up a nice amount through return upon return.This is because you also receive a return on your investment. In the long term, this adds up and your capital grows exponentially. When you start investing early, you need a much lower monthly amount to reach the same goal.

Can you spare 50 pounds?

Investing with 50 pounds can be a good idea when you like it or when you want to start exploring the stock market in peace. However, it is important to only invest with money that you absolutely can afford to lose. Do not invest with money that you will need soon: investing is a risky activity with which you can certainly lose money.

Investing with 50 pounds leverage

Anyone can start investing with online brokers nowadays. With these online providers, it is possible to make use of leverage. Thanks to the possibility of leverage, you can open a large investment position with a relatively low amount (for example, 50 pounds).The beauty of the leverage structure is that you cannot lose more than your deposit. However, the effect of losing or winning is much stronger, so that you can lose or win more money at once. With a leverage of one to twenty, you can, for example, trade £1000 worth of shares, commodities or currency pairs with a bet of £50.When you use leverage, your losses and profits are more significant. If you gain £1.00 with a leverage of one for twenty, you will immediately earn £20.00 or 40%! However, you can also quickly lose your entire deposit when you use leverage. Therefore, first practice with a demo and determine whether this way of investing suits you.

What can you do with 50 pounds?

Normally, you will make a small deposit of 50 pounds or so to try out the possibilities of investing. By trading with 50 pounds, you will discover whether you can make serious money with 50 pounds, and you can test which strategy works best for you. It is important to be serious about trading with those 50 pounds: don’t take excessive risks and try to really trade consistently.

If you manage to make a profit with 50 pounds, you can consider investing larger amounts. The rules of investing are the same. In practice, it is even easier to spread the risk with a larger amount. However, people who suddenly start investing larger amounts do not achieve as good results; this is because the losses are more painful and the emotions run high.

How can you make a lot of money by investing?

Do you want to make money investing? Whether you are in the UK or on Hawaii: thanks to the modern means of communication available, anyone can invest money anywhere. But how can you actually start earning a lot of money by investing? What is the best way to make a lot of money? And which risks do you have to watch out for?

How can you make a lot of money by investing yourself?

Do you want to decide for yourself what to do with your time in the future? Do you want to become completely financially independent? Then investing can be a good option! The great thing is that you don’t have to invest money to start! You can try out the possibilities for free with a demo. In this way you will discover whether you can make money by investing without running any risk yourself. Use the button below to compare the different demos:

The first step to making money with investing

The first step in making money from investments is to draw up a plan. For this, you have to ask yourself at least a few important questions:
  • How much money can you invest at the moment?
  • How much extra money can you invest each month?DEMO INVESTING
  • What risks are you prepared to take?
  • How much time do you have to invest?
It goes without saying that you can make more money when you can invest with more money, when you are willing to take more risks and when you have more time. At the same time, the chance of losing (a lot of) money also increases when you take more risks.

How do you make the most money investing?

If you really want to make a lot of money investing, you should at least apply these basic lessons:

Don’t wait too long

If you want to make money investing, it is wise to start today. This is partly due to the power of compound interest.When you invest, your assets grow in the long term. The money you earn with your investments can then be reinvested. You will also receive a return on this reinvested money, which will allow your assets to grow exponentially.If you want to make a lot of money investing or even become a millionaire, it is wise not to wait too long.

Be patient

If you want to make money investing, you have to be patient. Many investors lose money because they are too greedy. They invest in a nice set of shares and sell them after making a small amount of money. Or the stock market plummets and out of panic they sell the shares, just before the prices move up again.If you really want to make a lot of money investing, you need a lot of time. Therefore, have a long investment horizon and don’t deviate from your plan. This will increase the chance of achieving a good return!investment horizon

Fight your emotions

When you want to make money investing, you have to fight your emotions as much as possible. People avoid pain as much as possible. It is annoying to lose money and it is also annoying to lose profits. That is why most investors tend to keep losing investments open and to cut off profitable investments to quickly.You can counter such instincts by drawing up a plan. Establish clear rules and do not deviate from them. In this way you avoid losing a considerable amount of money.

Get in when everyone runs to the exit

I invested a lot of money during a crisis. During the corona crisis share prices fell by tens of percentage points. Many investors then quit because they saw share prices fall by dozens of precents. I myself then go looking for nice investments: after rain comes sunshine.When, on the contrary, prices rise enormously and almost everyone is shouting that you have to be crazy not to invest, you have to be careful. Euphoria often comes before the crash!

Keep learning

Even a great investor like Warren Buffett is still learning all the time. Therefore, the investor who makes the most money is the investor who is the least stubborn. You make mistakes: by regularly evaluating your investments, you learn what you have done wrong, and you can improve the results you achieve.

The luck factor

It is important to remember that luck also plays an important role when investing. It is a fact that economic crises occur on a regular basis. You simply do not see a black swan like the credit crisis or the corona- pandemic coming. If you get in at the wrong time, you can lose money.It is therefore particularly important to spread your risks well and to invest according to a plan. By doing so, you increase the chance that you will continue to earn money with your investments in the long term. After all, a short, quick profit followed by losses is worse than a substantial loss followed by stable profits.black swan

What is the best way to make money investing?

If you do not have a lot of time to investigate shares yourself, it may be smart to invest in an ETF. An ETF is an index fund that automatically tracks a basket of shares. By investing in an ETF, you automatically apply risk diversification, and you pay low transaction costs. For most people, investing in an ETF on a regular basis is the most profitable way to invest.

A good ETF in which to invest is the Vanguard FTSE AW. This ETF tracks the performance of the FTSE All-World index. At DEGIRO, you can invest in this fund at no transaction costs. Use the button below to open an account with this broker:

Select shares independently

You can also earn money by selecting shares yourself. In practice, it is difficult for many people to beat the market. If you do manage to select the right shares, you can earn even more money than by following an index.Are you looking for a good broker where you can buy and sell shares? Then take a look at our overview of quality brokers & discover the best option for you:

Speculating

The quickest way to make (and lose) money with investments is by actively speculating. You can then use leverage to increase both your potential profit and your potential loss significantly. With a leverage of 1:5 a price gain of 10% already leads to a profit of 50%. At the same time, your capital can immediately fall by 50% with the same decrease. Active trading is therefore not suitable for people who avoid risks. However, it is the only way to earn a lot in the short term by trading.Please note that around 80% of investors who actively trade lose money. It is therefore certainly not advisable for the majority of investors.

How much money can you make with active trading?

One million pounds! If only it were such a celebration: you can never say with certainty how much money you can make with investments. And don’t forget that you might as well lose a lot of money investing. Nevertheless, there are a few things that determine how much money you can make by trading in shares.

Risk/return ratio

Firstly, it is important to look at the relationship between risk and return. If you make a losing one for every winning investment you make, you have to make sure that you earn more for a winning investment than you lose for a losing one.Good traders try to optimize their risk: return ratio as much as possible. They only open investments that involve a small potential loss and a relatively higher chance of profit. In this way you increase the chance of making a lot of money with investments.On the basis of this you can determine the trading expectancy at a certain point. This is the amount you on average earn on an investment.make a lot of money investing

Number of trades

When on average you achieve a positive result with your investment, your profit increases when you make many investments. Of course, this only works if you open high-quality investments. Randomly opening all kinds of risky investments is of course counterproductive and reduces your chances of success.

How much do you invest in one trade?

How much money you earn then again depends on the amount you bet per investment. When you achieve a return of 1% per investment, it makes a lot of difference whether you invest $1.000 or $100.000.

You must pay close attention to your total capital or account size. In this way you can prevent the trading account from being blown up. If you lose the entire capital on your account, you are out of business.By drawing up a good plan, you can somewhat predict how much money you can make by investing. It is important to first try out your plan in detail with, for example, a demo. Also maintain sufficient margin: it is better to make stable smaller amounts than to risk everything.

What mistakes should you avoid when you want to become an investment millionaire?

Everyone dreams of becoming a millionaire. If you are good at investing, and you draw up a good plan then this is probably possible in the long term. However, you should then avoid the following pitfalls:

Investment misstep 1: following others to much

Almost everyone has a good investment tip: buy this trendy stock, invest in Bitcoins or put all your money in a savings account. If the person you are talking to hasn’t become a millionaire by investing, you’d better ignore their advice.

Investment misstep 2: parking your money with an asset manager

Many people make the mistake of blindly giving their money to an ‘expert’. The problem with asset managers is that they often cannot beat the market. In addition, they charge high transaction costs, which means that it still takes a long time before you earn money with your investment.

Investment misstep 3: investing without knowledge

It is essential to invest only in investment products that you understand. If you are going to buy all kinds of complicated derivatives without sufficient knowledge, there is a good chance that you will lose a lot of money investing. Therefore, first study the financial markets before you even think about making money on the stock market.

Investment misstep 4: just saving

A little saving is sensible: it is very annoying when something has to be repaired, and you simply run out of money. It is therefore certainly advisable to always put enough money aside. However, putting all the money you receive into a savings account is not a winning strategy when you want to become a millionaire: the interest rate on savings is historically low and the return on investments is actually almost always higher. Saving yourself rich is therefore not an option.

Investment misstep 5: Create a financial roadmap

You are never going to make a lot of money investing without a step-by-step plan. Consider the time frame within which you want to raise a million dollars with your investments. Then examine whether it is realistic to achieve this goal with the money you can deposit each month. If this is not the case, you will first have to increase your income to earn more with investments. And remember: you should never invest with money you can’t afford to lose!make money investing

How much can you earn buying shares?

The average annual return on an investment in shares is seven to eight percent. Whether you actually earn this depends very much on when you get in. Once you are at the top of the market, it can take a long time to make a profit on your investment. It can therefore be smart to apply dollar cost averaging with which you invest money at different times.

Do you want to know how to buy shares? Then read our special about buying & selling shares:

What are professional investors doing?

Everyone can invest online thanks to the advent of the Internet by using an online broker. But making good money by investing? Not everyone succeeds! More than 70 to 80% of beginning investors make a loss. It is therefore wise to follow a few tips when you want to start making money by investing.

Don’t be stubborn

A first important tip for every investor who wants to achieve a good result is not to be too stubborn. When the price has been rising for months, it is unwise to suddenly take a short position. The trend is your best friend and is a good motto for any novice investor!

Spread your chances

A visit to the casino is dull when you immediately bet all your money on red. If you want to gamble on the stock market you can bet all your money on one share. However, this is not a winning strategy. Spreading your positions as much as possible over different investment products and regions reduces your risk and thus increases your chances of success!

Don’t be a sheep

It is important not to behave like a sheep. If you want to be part of the herd, you soon belong to the 70% to 80% of investors who make a loss. You can do better than that! So don’t sell your shares in blind panic when things get worse. Also be mindful of bubbles when prices are rising.Making money investing sheep

You can only make good money by investing if you are not behaving like a sheep!

Read all 14 tips!

Do you want to get off to a good start right away? Do you want a higher chance of immediately making good money with your investments? Then read our 14 comprehensive investment tips to increase your chances of success:

Recognizing patterns

When investing via the internet, it is important to know the difference between buying and selling. As soon as you buy a share you make money when the price goes up and as soon as you sell a share you make money when the price goes down. It is important to recognize the right patterns.Short-term investing is actually about recognizing patterns. I always first determine the general direction of the price: this is called the trend. When the price has risen further and further over the past month, we can speak of an uptrend. When the share price has fallen, we can speak of a downtrend.Ultimately, when investing, the trick is to buy at a mainly rising price and to sell at a mainly falling price. In an uptrend you should buy when the price dropped slightly and in a downtrend you should see when the price has risen slightly.Fortunately, you don’t have to do this manually: by investing with an online broker, you can easily earn money by automating your system! After all, it is possible to set orders on which you automatically purchase the share or commodity. Moreover, you can also make use of a stop loss or a take profit: in this way, you automatically limit your maximum loss, and you can take your profit at a certain moment.Do you want to invest better? In our technical analysis course you will learn exactly what you need to recognize patterns correctly.

How can you investing in economically challenging times?

Many people stop investing when the economy is in decline and that is a pity! It is precisely in times of economic crisis that you can achieve the best investment results. In this article, we look at what you can invest in when the economy is going through a downturn.

Do not panic

When you own shares, it is important not to panic during hard or bad times. It is important to have a long-term horizon. In the short term, shares can do a lot worse. In the long term, however, shares will give much better results than savings.When you actively buy shares, you can eliminate these movements up and down by investing staggered: this is also called dollar cost averaging. You then deposit a fixed amount every month in, for example, a fund. It is often difficult to determine whether the market is at a peak or in a trough. By depositing a fixed amount each time, you limit part of the volatility, and you can confidently achieve a good return on the stock exchange.A crash can even be a good time to buy. It is therefore smart to always have some money in reserve. By buying additional shares precisely when the economy is less successful, you can profit from a ‘sell-off’. Reliable companies with a strong financial position often recover quickly, sometimes within a few months or a year.

Profit from falling prices with short positions

Everyone knows that you can buy shares and then make money when the price rises. However, with modern brokers you can also short sell, in which case you start the transaction by selling your shares immediately so that you have a negative number of shares. When the price goes down, you can buy the same shares back at a more favourable price, after which you deliver them at the higher price for which you opened the position.The technicalities of the transaction are fortunately not relevant, as the broker takes care of it for you. If you want to short sell, all you have to do is press the sell button, and you will be rewarded when the stock price drops. Read more about going short here.

How to invest smartly in economically challenging times?

By spreading your risks, you can limit the impact of economically challenging times. During the 2008 credit crisis, for example, it was mainly the housing market that suffered. During the corona pandemic, it was mainly companies that had to let people go. There were also differences between regions: because corona was better under control in China, the economy there grew.By making sure you invest in different sectors and countries, you reduce the impact of economic hard times. Spreading risk is therefore always a good idea!

Safe harbours

When the economy is not doing well, investors often seek refuge in safe havens. The price of gold, for example, often rises when there is a lot of uncertainty around investments. You also see that other alternative investments such as crypto-currencies can do well when there is a lot of uncertainty in the market.By looking for countercyclical investments, you ensure that you can benefit from the economic problems. Which investment products these are, can differ from crisis to crisis. During the Corona pandemic, for example, you could have invested in medical stocks, while travel stocks performed particularly badly.

An income & patience

Another smart investment strategy during tough economic times is to focus on income. For example, you can buy real estate and generate an income by renting out the flat. Another option is to buy shares in relatively stable companies that pay a nice dividend.If you have enough time, you can wait for recovery. Economic hard times are then no problem: you simply have to wait and perhaps buy some shares in the meantime.

Investing money in economically challenging times

With CFDs, the direction of the price is not really important: it is more about the movements that the price makes. In fact, when you invest in CFDs, the difference in price between the time you open and close your position determines the profit you make. Let’s do an example transaction where we short sell to illustrate how convenient this new way of investing is.Suppose you had bought the Facebook share around the time of the IPO and before the price plummeted. At CFD brokers you can do this with a leverage which allows you to make a lot of money with a low stake. If you had bought Facebook CFD shares with $1000 with a leverage of 1:5 for $5000, you would have been short with a total of 5,000/38=131 shares.If you had waited until the price dropped to $24, you would have made a profit of 14 X 131 = $1,834 in a period of less than four months! On your deposit of $1000, this is of course an enormous profit! However, it is important to carefully examine which transaction costs the broker charges. Transaction costs can reduce the return. Moreover, this way of investing is risky: if you open a bad investment, you can lose the entire amount of your deposit.facebook short example

Example based on the price movements of the Facebook share in 2012

Try investing in bad times yourself

Investing in bad performing stocks can be very profitable, sometimes even more profitable than investing in good performing stocks. When there is bad news, the pressure to fall is often stronger than the pressure to rise when there is good news. Decreases are often enormous and when you track the news around a company, you can successfully anticipate this.Incidentally, this also applies to other tradable instruments. What about the currency pair EUR/USD, for example? Every time there is negative news concerning euro countries, the pair EUR/USD drops dramatically. By analysing the expected movement with each news event, you can make money regardless of the direction of the price.Investing in economically uncertain times is therefore interesting. If this way of investing seems interesting to you, it is best to start with a free demo account. That way, you can discover if investing is for you. Use the button below to open a free demo account with a broker:

How much does it cost to invest in a mutual fund?

The cost structure of an investment fund is very important. In this article we will look at the influence of costs on the return that you will achieve with an investment fund. The costs play a more important role than most people think! How much does it actually cost to invest in a mutual fund?

Do not underestimate the impact of costs

When selecting an investment fund, many people mainly look at the return, while the costs should certainly not be underestimated! Costs have a strong effect on the final result of the fund. For an investment of $100,000, a difference of 0.65% in costs can mean almost a $100,000 lower return within a period of 30 years! cost of investment fund securityTherefore, when selecting a good investment fund, always pay attention to the costs! Every percentage point of costs that you have to pay within the investment fund is not a return! For example, if you have to pay one percent, the return must be one percent higher than that of another fund to achieve the same result.The effect of compounding only increases the effect of costs in the long run. By paying attention to the costs, you can therefore immediately improve your investment result.

Where can you invest in funds cheaply?

When you invest in a fund, you normally pay a purchase fee. The amount of these costs differs per fund and per broker: on average, you can count on a few pounds to 0.5% in entry costs.It is also possible to invest in funds without paying purchase and sales charges. This is possible at DEGIRO: at DEGIRO you don’t pay purchase and sales costs when you trade funds noted in their core selection. Use the button below to open a free account at DEGIRO:

Which type of investment fund is the cheapest?

There are two broad categories of investment funds: passive funds and active funds. A passive fund follows the market by, for example, buying shares quoted on the FTSE or S&P500. A passive fund does not try to beat the market and therefore no expensive analysts are needed.An active fund does hire analysts who try to beat the market. In practice, funds rarely succeed in beating the market (consistently). However, as an investor you do pay higher costs for a participation in an actively managed fund. Therefore, research whether an actively managed fund is worth your money.

Fixed costs & performance fee

It goes without saying that an investment fund incurs costs: in addition to the mark-up for profit, staff must be paid, the building must be rented and paper must be purchased. The fact is that an investment fund never invests for free.With a fund, you actually always pay a fixed percentage fee. This percentage is often somewhere between 0.5% and 2%. Before investing in a fund, always research how high the fee is. If the percentage is high, it is important to find out if it is justified.There are also funds where you pay a performance fee. This is often the case with hedge funds where there is very active trading. You then pay, for example, 20% of the profit to the fund when a profit is made. Be careful whether this is worth it: consider that a fund with high risks can easily achieve good results for a few years and then lose your money. The fund has then taken 20% of your positive results each time.

Exchange rate charges

If you invest in a fund that does a lot of investing abroad, you may also lose money through exchange rate charges. The exchange of currencies costs money anyway. Moreover, foreign currencies can become relatively more expensive, as a result of which you will get less for your investment. Keep this in mind if you want to invest a lot abroad.

Transaction costs

Remember that fund managers actively manage funds: they buy and sell shares regularly. The turnover factor or portfolio turnover ratio indicates how often a fund trades shares. Also, a fund pays transaction costs when they buy and sell shares; when all this active trading does not contribute positively to your return, all this extra trading only costs you money. Therefore, research whether a fund that is very active in trading actually achieves better results.

Spread

When you buy funds (ETFs) yourself from a broker, you also have to deal with a spread. The spread is the difference between the buy and sell price of a fund and are relative transaction costs that are charged to the broker. Is the spread very high? In that case, it may be wise to wait awhile before buying the ETF. The spread is often between 0.3 and 0.5 percent.The size of the spread depends on the trading volume. When a fund is widely traded, the spread decreases. The price formation on the stock exchange can then take place more efficiently. You therefore see that funds in emerging regions and economies often have a higher spread than funds that focus on American shares, for example.It pays to hold on to funds for a longer period of time. The buying and selling costs on an annual basis then decrease considerably. You can also compare whether an ETF with multiple listings is cheaper on a specific stock exchange. Research has shown that costs can vary widely between stock exchanges.

How do you know how much a fund costs?

It is often immediately clear how much it costs to buy or sell an investment fund. Your broker or fund often clearly states the percentage or amount you pay for your order. The costs you pay for the management are sometimes less clear. Read the documents with information on costs carefully: that way you will not be confronted by unpleasant surprises.

Don’t forget dividend leakage

Another ‘cost item’ is the so-called dividend leakage. In the Netherlands, the dividend tax rate is 15%, while in America, for example, it is 30%.When a fund buys shares in America, 30% tax is paid on this dividend. The Netherlands has treaties with many countries through which overpaid dividend tax can be recovered. When investing in a fund, leakage occurs when these ratios are not applied properly. Many ETFs have a dividend percentage of 0.3%.If you invest in shares yourself, and you do not live in America, you must fill in the W8-BEN form. This form prevents you from being taxed twice for the dividend you receive.

Do you want to invest yourself?

Do you have enough time? In that case, it can be attractive to invest in shares yourself. Before you start buying shares, you must of course understand what you are doing. As a beginning investor, it is attractive to try investing by means of a demo, this way you can test whether you can achieve a higher return by investing yourself.

What is the best way to invest your savings?

Have you saved a nice amount and are you looking for a good investment? In this article we look at how you can best invest your savings so that you can achieve a good return on your hard-earned money.

Why invest your savings?

It is certainly wise to have savings. You can always face unexpected expenses and by having savings at hand you never get into trouble. Taking out a loan for an expense is never a good idea because of the high-interest rates.

At the same time, it is also a shame to leave large savings balances in your account. Low savings interest rates and high inflation mean that your savings will only go down in value. It is therefore smart to invest part of your savings. But what are the best investments for your savings?

How many savings do you have?

What the best option is for your savings also depends in part on the amount in your account. Whether you have a thousand pounds or a million makes a big difference. It is smart to spread your risks as much as possible: this is easier with a larger amount. You can then invest your money more easily in different investment categories.

Before you start investing your savings, it may be smart to draw up a plan. Determine your risk appetite and use that as a basis for deciding how you want to spread your investments over the various investment products. That way, you will achieve the best results.

Investing money in shares

A good way to invest your savings is by buying stocks. It is important to spread your savings over different shares. That way, you avoid losing a large part of your money because one share performs badly. If you want to minimize the risks, it is best to make sure that you:
  • Invests in different sectors.
  • Invest in different regions.
  • Invest at different times.
It is important to spend sufficient time selecting shares. In general, stocks perform well in the long term: over the past 100 years, the annual return has been between 6 and 8 percent. However, individual shares can do much better or worse. Therefore, examine whether the company’s ideas can continue to work well in the future and whether the company can keep up with the competition.If you want to invest in stocks without paying commissions, you can choose eToro. At eToro you pay no commissions, so you can also invest with a smaller investment amount. Use the button below to directly open an account at eToro:

Investing your savings in ETFs

If you have limited savings and still want to benefit from the price movements on the stock exchange, you can choose to invest in ETFs. An ETF is a passive investment fund that is traded on the stock exchange. This sounds more complicated than it is: in simple terms, an ETF is a collection of for example shares in which you can investAn ETF may contain stocks listed on the AEX or the FTSE, for example. By buying the ETF, you can profit from the average increase of that index. Investing your savings in ETFs has its advantages:
  • You immediately apply a good level of risk diversification.
  • You do not have to make any difficult decisions.
  • Furthermore, you can invest your savings at relatively low cost.
  • Perfect for building up assets.
The best way to invest in ETFs is by periodically depositing a fixed amount. That way, you can still make the most of your savings with a minimum investment! A good broker where you can buy ETFs is DEGIRO. At DEGIRO you pay no purchase or sales charges when you buy ETFs from the core selection. Use the button below to open an account at DEGIRO:

Active speculation on the stock market

Are you not afraid of excitement and do you want to try and make the most of your savings? In that case, active speculation may be the best investment for you! By actively speculating, you can capitalize on the latest upward and downward price movements. With speculation, you can also open short positions: you then achieve a positive result when the price of the security falls.You can also use leverage with active speculation. This allows you to immediately open a larger investment position with a small amount of money. It is not advisable to invest your entire savings in this investment option: the risks are too high for that. If you are keen to learn and you enjoy being actively involved in the stock market, active speculation can still work out well.A great place to try active stock market speculation with a demo is eToro. Use the button below to instantly open a free demo at eToro:

Get the most out of your savings

Do you still want to keep a (large) part of your assets in a savings account? In that case, it is wise to at least get the most out of it. With some savings accounts you receive no interest at all, while with others you still receive a minimal interest.A good platform where you can compare interest rates is Raisin. Raisin is a website that lists the various savings products of foreign banks. This way you can always see right away where you can get the highest return. Would you like to try Rasin yourself?  Use the button below to visit the Rasin site directly:

best savings investing

Putting your savings in real estate

When you have saved up a considerable amount of money, it can also be interesting to invest in real estate. For example, you can buy a small flat and rent it out for the long term. That way, you build up a steady income with your savings.The good thing is that you can also use leverage here. You can borrow part of the money from the bank, so you don’t have to pay the full amount immediately. Real estate investments do take more time than stock market investments: you need to find tenants and maintain the property. Keep this in mind when you start investing in real estate.Alternatively, you can put your money in shares of companies that deal with real estate. You can also choose to invest in a real estate fund. Always investigate the risks well and determine whether the properties are in a good location. This is often extra important when you invest in real estate.

Investing in loans

You can also choose to invest your savings in loans. Both companies and consumers constantly need money and if you have savings that you are not using, you can help these parties. It is of course risky to lend out all your money at once to a relatively unknown party. Fortunately, there are platforms that make it possible to reliably lend your money to various parties.A good example of this is Mintos: on this platform you can easily receive more than 12% interest. By using the automatic algorithms, you can spread the money you want to lend over different parties. Please note that lending money is certainly not without risk: if you are prepared to take risks, this way of investing can be interesting. Use the button below to open an account immediately:

Do not forget about your debts

Do you have many savings, but still have outstanding debts? That is a real shame! The savings interest rate is almost 0%, but the interest on loans certainly is not. It is therefore definitely advisable to pay off your debts when you can. The best investment is therefore always a paid off debt!

Insulating your home

Another less obvious investment is to insulate your house. By properly insulating your home you can make significant savings on your energy costs. The return on good insulation is therefore certainly positive, and it also increases your living pleasure. According to a study by milieucentraal, insulating a cavity wall in a middle-sized house costs approximately $800, but you will earn this back in three years thanks to the average savings of $260: an annual return of 33% is not bad!You can also make your house more sustainable in other ways. For approximately $5000, you can install ten solar panels which will pay for themselves over a period of 8 to 10 years. Not a bad return when you compare this with the results you normally achieve on the stock market!

house preservation

Cryptos

More and more money is being printed: investing in cryptocurrencies such as bitcoin and Ethereum can therefore turn out well. However, it is important to be careful: you can certainly make a big hit by investing in cryptos, but there are absolutely no guarantees. The chance of losing a lot of money is quite as big.Do you want to learn how to invest some of your savings in cryptocurrencies yourself? Use the button below to read our special on this topic:

Pay off your mortgage

The mortgage interest rates are a lot lower nowadays. If you have paid off a mortgage a while ago, the interest rate can be a lot higher. By paying off your mortgage, you reduce your monthly costs, and you have more money left over for fun things. So, paying off your mortgage can also be a smart idea for investing your savings.

Save or invest?

When you have little assets, it is always best to save your money. However, when you have many savings, it is also wise to invest some of it. Use the button below to read more about the differences between saving and investing:

Conclusion: what is the best way to invest your savings?

The answer to this question will be different for everyone. For some people, for example, it is much more important to experience a feeling of security: they would rather put their money in the bank than run risks on the stock market. For others, it is more important to build up wealth and shares are a good method to do this.You can also think out of the box and, for example, pay off part of your mortgage or make your house more sustainable. By looking at ways to reduce your fixed costs you can also achieve a positive return on your savings. We are curious: how do you prefer to invest your savings?

The influence of emotions on trading

Emotions have a major influence on the result you achieve with trading. It doesn’t matter how good your analyses are when you don’t manage to control your emotions. However, you can also benefit from the presence of emotions on the trading floor.Two powerful emotions are fear and greed. In this article, you will read everything you need to know about the influence of emotions on your investments.

(too much) fear is dangerous

Women are generally less self-confident and this can be seen in their investment behaviour. Women are often more cautious and make fewer transactions in a year. This can work out well since the transaction fees are lower in this case, which results in a higher return. Too much fear, however, can have a negative effect.Many investors make the mistake of letting their emotions influence their trading behaviour too much. Loss aversion or the fear of losing play a role in this. People have a natural tendency to avoid losses and risks as much as possible. We see this everywhere: For example, the Dutch have more insurances than they need.

Prevent negative results due to anxiety

When you look at the investing behaviour of the individual, loss aversion often has a negative effect on the results. This is because traders want to avoid loss as much as possible. However, the consequence is that bad investments are not closed, with the hope that they will become profitable in the future. At the same time, investors close profitable investments too quickly because they are afraid of losing profit.It is therefore important to always draw up a plan. Think in advance when you open or close an investment. It is important to be able to defend the investment with facts. If this is not the case, it is not wise to open the position. By drawing up a very rational plan, you will prevent yourself from going wrong at a later stage. That way the emotion fear does not affect you.Finally, as a trader, it is more important to accept that winning is always impossible. Economic crises and downturns always occur, and it is important to deal with them wisely. Don’t let your fears and emotions guide you and only make a decision once you have thought about it.

Preventing anxiety

As an investor, fear is your greatest enemy. It is wise to avoid this emotion as much as possible. You do this by only investing with money you can spare. Do you immediately feel uncomfortable with your new position? Then you probably trade with too much money.I only open investments that don’t wake me up at night. That way it stays fun.Emotions trading fear

Take advantage of the emotion fear

As an investor, it is also possible to profit from fear. During the economic crisis of 2008, many people dumped their shares at sharply reduced prices. The reason behind the decision to dump shares was rarely rational. Under the influence of the media, you could see that people anxiously sold everything because they assumed that the ship was going to sink.Moments of mass hysteria like this can offer great oppertunities. When shares are dumped on a massive scale, you can look for bargains. Research yourself whether there is a rational reason behind extreme falls in share prices that you sometimes see. When there is no rational reason, you can sometimes achieve a return of 20% or more within a short time span.This works during an economic crisis, but also when a company is temporarily doing less well. This can happen, for example, when a scandal comes to light. For example, several car manufacturers have been accused of tampering with emissions. This led to substantial decreases in car shares, while the companies were still doing well. In the longer term, therefore, there was an upturn.Volkswagen stock price emotions

Volkswagen’s stock price after the company appeared to be tampering with emissions

Greed has two sides

Did you know that trading is still mainly a male sport? For every female investor, there are nine males, although this seems to be changing a bit lately. Men often have a higher degree of greed and without greed, there is no stock market. However, is greed the best friend or most feared enemy of the professional investor?Let’s just say greed is a necessary evil. Without greed, one would not strive for the highest possible return and would simply start saving safely. However, it becomes dangerous when greed becomes so great that the investor takes huge risks.Especially when you trade using leverage, it is important to keep a cool head and to take the additional risk of the investment into account.

Too much greed is dangerous

Too much greed, however, is always disadvantageous. High levels of greed can even cause a so-called bubble. A good example of this is the enormous rise of the Bitcoin in 2017 and 2018 followed by a huge crash. When people urge each other too strongly to invest in something, greed can lead to strong market movements.When this happens, the actual value of an investment can be much lower than the price. People then simply buy something because they expect it to continue to rise tremendously. When the underlying investment turns out to be worth nothing, the house of cards collapses. As a result of the fear described earlier, the price can then suddenly drop significantly.

Don’t get carried away

It is therefore important not to get carried away by the emotions of the mass. When the postman and the milkman all indicate that you have to make a great new investment, it is better not to do it. Always ask yourself whether there is a good reason to invest in a share. Is there no good reason to do so? Then there is probably an economic bubble.
Tip: Aim for a high return, but keep the risks in mind!
cryptocurrency crash

After the enormous greed comes the inevitable fall. Cryptocurrencies in 2017-2018.

What other emotions do you have to watch out for?

In addition to fear and greed, there are other emotions you should be aware of when trading. Below we discuss how you can deal with these feelings.

Hope

They sometimes say that hope lives. Many investors who buy a share expect it will rise. However, hope alone is not enough. Therefore, check regularly whether the company behind the share is still performing well and make sure that all your investments are supported by hard figures.Even for active traders, hope can lead to bad results. They keep a loss-making position open for too long, even though it should have been closed a long time ago. As a result, a small loss can lead to a huge loss. You should therefore always use a stop loss as an active trader so that your positions are automatically closed.

Frustration

When you feel that you are doing everything right and the results are still disappointing, you can become frustrated. It can also be very frustrating when you constantly break your rules. Frustration is always a dangerous emotion. Irritation can cause you to make irresponsible decisions and open positions you shouldn’t have opened.When you are frustrated, it is therefore important to seek distraction. Only when you can look at your trades objectively you should return to your computer screen.

Boredom

We live in a society full of constant stimuli and entertainment. Waiting months or even years for a share to rise can therefore become boring. Yet patience when investing is a virtue. It is important to always stick to your plan. Are you looking for some excitement? Take a ride on a roller coaster and leave your  trades alone.Isn’t holding shares in the long term interesting enough? Then you might as well consider becoming a day trader. As a day trader, you can take action every day. For this way of trading you need much more time.emotions investing

How do you trade without emotions?

Research has shown time and time again that especially novice investors often buy at the top and sell in a dip. If you want to achieve good results, you have to do just the opposite. But how do you ensure that emotions play a smaller role in your trading activities?

Automate your investments

The first way to get emotions out of your investments decisions is to automate them as much as possible. In any case, it is important to always draw up a plan for this. In the plan, you can then determine when and especially why you want to buy and sell a share. By doing so, you avoid making the wrong decision during exceptional market circumstances.For many investors it is then wise to leave your investment account alone. Make sure you have set the value at which you take your losses and profits. By not logging in all the time you avoid getting stressed when the market collapses and your plan will automatically be executed correctly.

Dollar cost averaging

Of course, as an investor, you want to avoid getting in on top and selling in the dip. A good way to prevent this is by applying dollar-cost averaging. This is an investment strategy in which you do not invest all your money in one share at once. So, you don’t buy Apple shares for $10,000 in one go. Instead, for example, buy $1,000 worth of Apple stock each year.One year you may receive 5 shares and the other year 6 shares. By applying this method you buy the shares at an average price, and thus you’ll achieve an average return. For most people this is the best way to invest: hardly anyone succeeds in timing the market correctly.

Spread investment

Finally, it is smart to invest as spread out as possible. Investors often panic when their investments suddenly fall sharply. It rarely happens that all sectors perform poorly at the same time. By spreading your investments across different sectors, you reduce the risk of a drop in all your combined investments.For investors with a smaller portfolio, it can be smart to trade in an index fund or ETF. By using these investment products, you can easily spread your money over different investment products. By depositing money in the fund on a monthly basis, you immediately apply the technique of dollar-cost averaging.

How do you control your emotions?

All decisions we make are at least partially based on emotions. In a well-known psychology study it was discovered that when the brain part responsible for our emotions no longer works, we can no longer make decisions at all. In fact, our brains are so cleverly built that, in retrospect, they often rationalize our emotional decisions.

For example, you break up with your love partner because you no longer experience enough positive emotions. After the breakup you rationalize this decision by drawing up a whole list of things that were wrong with him or her. In daily life, it is not essential to be aware of this. When you are going to trade, however, it is important.It is then advisable to actively seek out emotional impulses. Think about what certain feelings aroused in you and see how it influenced your investment behaviour. For example, have you opened dozens of trades out of boredom? Then it is important to acknowledge the ineffectiveness of this emotion and to devise a strategy to prevent this from happening again in the future.Only through regular evaluation will you learn how your emotions influence your behaviour and you can steer them better.

Greed is good, fear is…

Let me close this article with one of my favourite film quotes: ‘greed is good’ from the film Wall Street. A healthy degree of greed combined with some fear makes you an emotionally strong investor. However, make sure that both emotions remain well-balanced so that you can invest responsibly and successfully.After all, too much greed leads to too high risks and therefore a lower or negative return. Fear, on the other hand, leads to uncertainty in which investments are often not made at all. Investing leads to a higher return in the long term than saving. Do you want to learn how to invest yourself? Then take a look at the three-step plan to start trading!

Make money on the internet: 64 proven methods!

Do you also want to earn good money? Do you have access to the internet? Use these 64 methods to make money online! Earning money has never been so much fun!

Method 1: Active trading

A good way to make money on the internet is active trading. By actively trading, you can speculate on rising and falling prices. When negative news is released, you can decide to short sell a share. You then earn money when t